Category: zerohedge

As China’s anti-corruption crackdown continues, the crony-capitalists are slowly exposed. As EJ Insight reports, the son-in-law of former PBOC governor and former Tianjin mayor Dai Xianglong bought millions of dollars of shares (via offshore entities) ahead of Beijing’s decision to allow mainland residents buy Hong Kong stocks directly.

 

BREAKING: Son-in-law of ex-China central bank chief Dai bought massive Hong Kong stocks via offshore firms – Ming Pao http://ift.tt/1n8AvJo

— George Chen (@george_chen) July 7, 2014

 

As EJ Insight reports,

The son-in-law of former Tianjin mayor Dai Xianglong spent millions of Hong Kong dollars buying shares in the special administrative region one year before Beijing announced in August, 2007 plans to pilot its “through train” scheme to let mainland residents buy Hong Kong stocks directly.

 

According to an investigation by Ming Pao Daily and the International Consortium of Investigative Journalists, Che Fung bought nearly HK$100 million worth of Hi Sun Technology (00818.HK) shares at HK$1.46 apiece in March 2006 through his wholly owned BVI vehicle Ever Union. A month later, Hi Sun announced a one-to-four share subdivision.

 

Che sold some of the shares in December 2006, creaming off HK$240 million after costs, the report said. Che still has 90 million shares in the company.

 

The announcement of the “through train” plan helped drive the Hang Seng index to a record in October 2007, with Hi Sun’s shares climbing to HK$3.50, the report said. Then-premier Wen Jiabao said in November that year that the government needed to study the risks before going ahead with the plan. Beijing official scrapped it in January, 2010.

 

Hong Kong exchange data showed that Ever Union has HK$1.4 billion combined shares in Hi Sun, MI Energy Corp. (01555.HK) and Digital Domain (00547.HK).

 

Ever Union’s office in Hong Kong’s International Finance Centre did not respond to a written inquiry from Ming Pao.

*  *  *

The question is – what will they do about it?

via Zero Hedge http://ift.tt/1n8AvZO Tyler Durden

Submitted by Tim Price via Sovereign Man blog,

Lord Overstone said it best. “No warning can save people determined to grow suddenly rich.”

Case in point – CYNK Technology Corp, a listed company that as of this morning has a market capitalization in excess of $1 BILLION.

According to official filings, the social media development company had one employee, no website, no revenue, no product, and no assets.

What has effectively united this company with prudent investors is today’s central banker.

Andy Haldane, the chief economist for the Bank of England, conceded last week that ultra-accommodative monetary policy had “aided and abetted risk-taking” by investors.

But to the central bank, it was worth using higher asset prices to stimulate the economy:

“That is how [monetary policy] is meant to work. That’s why we did it.”

Central bankers, of course, will not be held accountable when the crash finally hits, even if the accumulated dry tinder of the boom was almost entirely of their own creation.

Last week the Bank for International Settlements, the central banker for central banks, issued an altogether more circumspect analysis of the world’s current financial situation, in their annual report.

It concluded with an entirely welcome sense of caution against monetary policy’s “diminished effectiveness and side effects.”

Translation: ZIRP (Zero Interest Rate Policy – and in the case of the European Central Bank, which has taken rates negative, NIRP) is no longer working – if it ever did.

Hyper-aggressive monetary policy has side effects. Getting out of this mess is not going to be easy, and it’s going to be messy.

In an interview with fund manager John Hussman, Professor Robert Shiller summed up the situation in the markets right now:

“I am definitely concerned. When was [the cyclically adjusted P/E ratio or CAPE] higher than it is now? I can tell you: 1929, 2000 and 2007.”

And Hussman:

“The central thesis among investors at present is that they have no other choice but to hold stocks, given the alternative of zero short-term interest rates and long-term interest rates well below the level of recent decades…”

 

“Investment decisions driven primarily by the question ‘What other choice do I have?’ are likely to prove regrettable. What we now have is a market that has been driven to one of the four most extreme points of overvaluation in history. We know how three of them ended.”

If one chooses to invest at all, invest on the basis of valuation. Pay money. Take choice.

As an example of the sort of valuations currently available away from the herd, consider the following. You can buy the US S&P 500 index today with the following metrics:

Price / earnings: 18.2
Price / book: 2.76
Dividend yield: 1.89%

Meanwhile, Greg Fisher in his Halley Asian Prosperity Fund (which is currently closed) is buying quality businesses throughout Asia on far more attractive valuations:

Average price / earnings: 7
Average price / book: 0.8
Average dividend yield: 4.5%.

But the realistic prospect of growth is also on the table. The fund’s average historic return on equity stands at 15%.

The conclusion seems clear to us.

via Zero Hedge http://ift.tt/1n1aOpb Tyler Durden

Boeing has had a tough week or two – the scandal over Ex-Im bank – its cheap funding source of competitive advantage, this weekend's train derailment of Boeing fuselages, and now, in Barcelona, a 767 and an Airbus A340 battle for the same airpsace coming within a few hundred feet of total carnage.

 

As The Daily Mail reports,

The dramatic moment two planes almost collided on a runway in Barcelona has been captured on camera.

 

The footage reveals the near-miss between a Boeing 767 from Russian airline Utair and an Aerolineas Argentinas Airbus A340 at El Prat Airport in Spain.

 

It shows the Boeing coming in to land on the runway, making its final approach, as the Airbus, getting ready for a flight to Buenos Aires, taxis across its path.

 

 

The Boeing is forced to abort the landing, with the pilot carrying out an emergency 'go-around' procedure.

 

The jet, which had travelled from Russia, landed safely shortly afterwards.

 

It comes just days after two planes narrowly averted a midair crash near the Bush Intercontinental Airport in Houston.

*  *  *

We can only hope Janet Yellen's 'macro-prudential' policies will be less of a near-miss of the total collapse in risk assets we suspect is coming…

via Zero Hedge http://ift.tt/1ms6OCl Tyler Durden

While Spain may have been scrambling for the past several years to figure out how to spin its economy, boasting one of the highest unemployment rates in the Eurozone, as recovering, coming up with numerous changes to what it believes should constitute GDP, most recently including an estimate of the contribution hookers and blow add to the economy, a surprising place which has emerged as a potential source of huge economic upside for Spain’s economy is none other than the recently established Islamic State created by the ISIS al-Qaeda spin off. Because, stunningly, in a story right out of a history book covering the Islamic Conquest and subsequent Reconquista (however not in the middle ages but in the 21st century), the hardest-core Islamists around, those which even al-Qaeda deemed too “extremist”, appears to have sworn to invade Spain next!

Just think of the epic GDP boost a new Christian-Muslim war fought on European soil would generate…

As RT reported over the weekend, a group of jihadists claiming to be part of ISIS have vowed to invade Spain along with all other “occupied lands” in a video posted on the web. The men say Spain is the land of their forefathers and that they are prepared to die for their nascent Islamic State.

The men say Spain is the land of their forefathers and that they are prepared to die for their nascent Islamic State.

 

The video of two men claiming to be militants from the Islamic State of Iraq and the Levant (ISIS) has taken the Spanish media by storm. The minute-long footage shows them speaking in Spanish, and saying that ISIS will take over Spain.

“I tell you, Spain is the land of our forefathers, and, Allah willing, we are going to liberate it, with the might of Allah,” says one of the men. He adds that the group won’t stop at Spain and intends to spread its Islamic Caliphate across the world.

 “I say to the entire world as a warning: We are living under the Islamic banner, the Islamic Caliphate. We are going to die for it until we liberate all the occupied lands, from Jakarta to Andalusia,” he said.

The footage has not yet been independently verified, but it would not be the first video released by the group. Last month, ISIS released a propaganda video entitled: “There Is No Life Without Jihad” in which Australian and British members of the group appealed in English for Muslims across the world to join their cause.

“We have brothers from Bangladesh, from Iraq, from Cambodia, Australia and the UK,” says a militant called Abu Muthanna al-Yemeni, who himself comes from Britain, according to a video caption.

The full clip is below:

In other words, ISIS may or may not wage war on Spain next. The only question we have is whether Eurostat will add back the non-GAAP GDP benefits from such a war now, on a purely one-time, non-recurring pro forma basis, of course, or actually wait for war to break out. Judging by the circus European economic data has become, we would wager money on “now.“

via Zero Hedge http://ift.tt/1jZKbkB Tyler Durden

BBC reports that – in 1957 – the British and American leaders approved the use of Islamic extremists and false flag attacks to topple the Syrian government:

Nearly 50 years before the war in Iraq, Britain and America sought a secretive “regime change” in another Arab country… by planning the invasion of Syria and the assassination of leading figures.

 

Newly discovered documents show how in 1957 [former Prime Minister of the United Kingdom] Harold Macmillan and President Dwight Eisenhower approved a CIA-MI6 plan to stage fake border incidents as an excuse for an invasion by Syria’s pro-western neighbours, and then to “eliminate” the most influential triumvirate in Damascus.

 

***

 

Although historians know that intelligence services had sought to topple the Syrian regime in the autumn of 1957, this is the first time any document has been found showing that the assassination of three leading figures was at the heart of the scheme. In the document drawn up by a top secret and high-level working group that met in Washington in September 1957, Mr Macmillan and President Eisenhower were left in no doubt about the need to assassinate the top men in Damascus.

 

***

 

Mr Macmillan ordered the plan withheld even from British chiefs of staff, because of their tendency “to chatter”.

 

***

 

Driving the call for action was the CIA’s Middle East chief Kermit Roosevelt, grandson of former president Theodore Roosevelt.

Kermit Roosevelt had a proven track record in this sort of thing.  According to the New York Times, he was the leader of the CIA’s coup in Iran in 1953, which – as subsequently admitted by the CIA – used false flag terror to topple the democratically elected leader or Iran.

BBC continues:

More importantly, Syria also had control of one of the main oil arteries of the Middle East, the pipeline which connected pro-western Iraq’s oilfields to Turkey.

 

***

 

The report said that once the necessary degree of fear had been created, frontier incidents and border clashes would be staged to provide a pretext for Iraqi and Jordanian military intervention. Syria had to be “made to appear as the sponsor of plots, sabotage and violence directed against neighbouring governments,” the report says. “CIA and SIS should use their capabilities in both the psychological and action fields to augment tension.”

 

***

 

The plan called for funding of a “Free Syria Committee” [hmmm … sounds vaguely familiar], and the arming of “political factions with paramilitary or other actionist capabilities” within Syria. The CIA and MI6 would instigate internal uprisings, for instance by the Druze [a Shia Muslim sect] in the south, help to free political prisoners held in the Mezze prison, and stir up the Muslim Brotherhood in Damascus.

Is it purely coincidence that the U.S. has heavily armed Al Qaeda Muslim extremists in Syria (and see this), and trained the jihadis who later became ISIS?

Regime change in Syria was not a once-off plan.   Neoconservatives also planned regime change in Syria more than 20 years ago … in 1991.

The West Has Been Arbitrarily Breaking Up Middle Eastern Countries for 100 Years

The Western powers agreed 100 years ago to arbitrarily divvy up the Middle East, without regard for historical boundries.

Neooconservatives in the U.S. and Israel have long advocated for the balkanization of Syria into smaller regions based on ethnicity and religion.

The goal was to break up the country, and to do away with the sovereignty of Syria as a separate nation. (The same goal has long applied to Iraq and other Arab states as well.)

In 1982, a prominent Israeli journalist formerly attached to the Israeli Foreign Ministry allegedly wrote a book expressly calling for the break up of Syria:

All the Arab states should be broken down, by Israel, into small units ….

 

Dissolution of Syria and Iraq later on into ethnically or religiously unique areas such as in Lebanon, is Israel’s primary target on the Eastern front in the long run.

In any event, it is well-documented that – in 1996 – U.S. and Israeli Neocons advocated:

Weakening, containing, and even rolling back Syria ….

Michel Chossudovsky pointed out last month:

Destabilization and political fragmentation in Syria is also contemplated: Washington’s intent is no longer to pursue the narrow objective of “regime change” in Damascus. What is contemplated is the break up of both Iraq and Syria along sectarian-ethnic lines.

And the following map prepared by Lieutenant-Colonel Ralph Peters (retired colonel of the U.S. National War Academy) in the Armed Forces Journal in June 2006 shows a balkanized Syria and Middle East:

In summary, we don’t have conclusive proof that the U.S., Israeli or their allies have intentionally broken up Syria.

But in light of such claims – and the 57-year old American-British plan to stir up Muslim Brotherhood and other religious extremists  in Syria – maps showing the Islamic jihadi group ISIS’ carving up of Syria (and Iraq) into “the Islamic State” are interesting, indeed:

via Zero Hedge http://ift.tt/1rInwRB George Washington

Submitted by James H Kunstler of Kunstler.com,

With lakes, swimming holes, rivers, and pools beckoning, I went to a sporting goods chain store at the mall — where else? — seeking a new bathing suit (pardon the quaint locution). The store was curiously named Dick’s. All they had were clown trunks. By this I mean a garment designed to hang somewhere around mid-calf, instantly transforming a normally-proportioned adult male into a stock slapstick character: the oafish man-child.

This being a commodious warehouse-style store, there was rack upon rack of different brands of bathing suits, all cut in the same clown style. I chanced by one of the sparsely-deployed employees and inquired if they had any swimming togs in a shorter cut.

“What you see is alls we got,” he said.

Even the Speedo brand had gone clown — except for the bikini brief, which I wore back during 30 years of lap-swimming, but which I deemed not quite okay for an elderly gentleman on the casual summer swim scene. So I left Dick’s without a new suit, but not before having a completely unsatisfying conversation with one of the managers.

“In the old days,” I explained, “bathing suits were designed to minimize the amount of cloth one dragged around in the water. These clown trunks you sell not only make a person look ridiculous, but they must be an awful drag in the water.”

“That’s what they send us,” he said. “It’s alls we got.”

The Fourth of July rolled in just in time to celebrate the disintegration of Iraq following our eight-year, three trillion dollar campaign to turn it into a suburb of Las Vegas. Me and my girl went over to the local fireworks show, held on the ballfield of a fraternal order lodge on the edge of town. The fire department had hung up a gigantic American Flag — like, fifty feet long! — off the erect ladder of their biggest truck, in case anybody forgot what country they were in. Personally, I was wondering what planet I was on. It was a big crowd, and every male in it was dressed in a clown rig.

The complete outfit, which has (oddly) not changed in quite a few years (suggesting the tragic trajectory we’re on), includes the ambiguous long-short pants, giant droopy T- shirt (four-year-olds have proportionately short legs and long torsos), “Sluggo” style stubble hair, sideways hat (or worn “cholo” style to the front ), and boat-like shoes, garments preferably all black, decorated with death-metal band logos. You can see, perhaps, how it works against everything that might suggest the phrase: “competent adult here.” Add a riot of aggressive-looking tattoos in ninja blade and screaming skull motifs and you get an additional message: “sociopathic menace, at your service.” Finally, there is the question: just how much self-medication is this individual on at the moment? I give you: America’s young manhood.

Does it seem crotchety to dwell on appearances? Sorry. The public is definitely sending itself a message disporting itself as it does in the raiment of clowning. Here in one of the “fly-over” zones of America — 200 miles north of New York City — the financial economy is mythical realm like Shangri-La and the real economy is somewhere between the toilet and a rat hole. Under the tyranny of chain stores, there really is no true local commercial economy. The few jobs here are menial and nearly superfluous to the automatic workings of the giant companies.

I don’t have the statistics but I suspect a lot of the males around here are on federal disability payments, and probably in the psychological categories including “depression,” “learning disabilities,” “ADHD, and so on.” In such a situation, wouldn’t a person benefit from presenting himself as child-like, with a dash of menace? And wouldn’t it be advantageous to look that way all of the time, in case one was unexpectedly visited by a government employee?

Down in Brooklyn, a world away, the young men go about in their hipster uniforms: Pee Wee Herman cut casuals. They’re still role-playing “the smart kid in the class” even though they’ve been out of class for a decade. Their computer dreams of IPO glory are formulated with the tunnel-vision of science fair projects. Left out are the realities of the greater unraveling.

Women are not at the center of this story. Theirs is another story. Let some woman tell it before I get to it.

Never has a society entered an epochal transition with such unpreparedness.

Never has a society appeared so childishly decadent.

via Zero Hedge http://ift.tt/1n0Xn8Q Tyler Durden

100% of people have a view on Thomas Piketty’s “Capital In The 21st Century” – for better or worse – confidently spewing supportive anecdotes of what they think he said and what they believe he means… But, as WSJ reports, people who spent hard-earned (or government-subsidized) money to buy his socialist tome have only read 2.4%. It appears few – if any – made it past page 26… Perhaps they would all be better off reading this.

 

As WSJ reports – based on the so-called Hawking Index (which correlates to pages read) mockingly named after Stephen Hawking’s Brief History of Time which held the record for most-bought-least-read book for a long time…

“Capital in the Twenty-First Century” by Thomas Piketty : 2.4% read

 

Yes, it came out just three months ago. But the contest isn’t even close. Mr. Piketty’s book is almost 700 pages long, and the last of the top five popular highlights appears on page 26.

 

Stephen Hawking is off the hook; from now on, this measure should be known as the Piketty Index.

(Methodology: Take the page numbers of a book’s five top highlights, average them, and divide by the number of pages in the whole book. The higher the number, the more of the book we’re guessing most people are likely to have read.)

*  *  *

Of course – there are plenty of taking heads willing to explain it to you but we offered an alternative economics textbook here that we suspect offers more accurate and useful insight…

via Zero Hedge http://ift.tt/1oelSR4 Tyler Durden

Hurricane Arthur may have been, pardon us Jamie Dimon, a “tempest in a teapot” fizzling quietly in the Atlantic, but halfway around the world, a far greater storm is currently picking up speed and barreling toward Japan. As Reuters reports, Typhoon Neoguri, described as a “once in decades storm” is set to rake the Okinawa island chain with heavy rain and powerful winds. Typhoon Neoguri was already gusting at more than 250 km an hour (150 mph) and may pick up still more power as it moves northwest, growing into an “extremely intense” storm by Tuesday, the Japan Meteorological Agency (JMA) said.

The storm was south of Okinawa but moving northwest at 25 kph (16 mph) with sustained winds of 180 kph (110 mph) by 7:00 p.m. (1000 GMT), the JMA said on its web site.

The JMA official urged people in the target areas to evacuate early and take precautions. Television showed fishermen winching their boats out of the water. A forecast of the storm path is shown below:

As Bloomberg added moments ago, the nation’s Meteorological Agency issued an emergency warning
for high waves for most of Okinawa prefecture, including the capital. Storm intensity is forecast to increase to violent from very strong, move toward Japan’s main islands. Gale, storm surge, heavy rain, high wave and thunderstorm warnings ore advisories are in effect for all of Okinawa. Heavy
rain warnings are in effect for portions of Kyushu, Japan’s
southernmost main island, and for southwestern portions of Honshu,
Japan’s main island

The good news: Neoguri is at not expected to be as strong as Typhoon Haiyan, which killed thousands in the Philippines last year. The bad news: the damage and devastation will still be substantial, which for a country where GDP just cratered following the March tax hike and which many believe has already entered recession, is just what the Keynesian doctor ordered.

What is worse (or better depending on one’s point of view) is that US military assets are right in the path of the hurricane: the JMA  said on Monday evening it also planned to issue an emergency high sea warning for Okinawa island, host to three-quarters of U.S. military facilities in Japan. The commander at Kadena Air Base, one of the largest U.S. military establishments on Okinawa, warned that damaging winds were expected by early Tuesday.

“I can’t stress enough how dangerous this typhoon may be when it hits Okinawa,” Brigadier General James Hecker wrote on the base’s Facebook page on Sunday. “This is not just another typhoon.”

“In these regions, there is a chance of the kinds of storms, high seas, storm surges and heavy rains that you’ve never experienced before,” a JMA official told a news conference. “This is an extraordinary situation, where a grave danger is approaching.”

Clearly, Japan needs some training in panic-prevention. It certainly will come in handy when the failure of Abenomics finally “trickles down” through to the Nikkei.

The silver lining is that there is no (well, this is Japan, so make that little) chance of a Fukushima repeat: there are no nuclear plants on Okinawa, but there are two on Kyushu, Japan’s westernmost main island that lies in the area through which the typhoon is likely to pass, and one on Shikoku island, which borders Kyushu and could also be affected.

All are halted in line with current national policy. A spokeswoman at Kyushu Electric Power Co said there were no specific plans related to this typhoon but the company had plans in place year-round to protect the plants from severe weather.

As for the wealth creation addicts: the Nikkei 225 will keep trading no matter what.

via Zero Hedge http://ift.tt/VzX4ME Tyler Durden

Last week we noted that inflation has already entered the economy. It isn’t showing up in nominal price hikes because it never does at first… As we noted last week…

 

Let’s be clear here… inflation does NOT mean prices have to move higher in nominal terms. The reason for this is because companies cannot and will not simply raise prices overnight. Consumers will not simply put up with the cost of a good going up time and again.

 

So don’t look for the cost of an item to necessarily go straight up in nominal terms. This can happen, but more often than not, corporations engage in a number of different strategies to maintain profit margins without raising prices.

 

These strategies include:

 

1)   Shrinking the box/package of the good, thereby selling less for the same amount.

2)   Not filling the package all the way; again selling less for the same amount.

3)   Changing what’s considered a “serving size” or the quantity of good being sold.

4)   Swapping in lower quality ingredients, thereby selling a lower quality good for the same amount.

 

Companies have been doing all of these since 2008. Most recently however, costs have risen to the point that these strategies won’t cut it anymore. Consequently, we’re starting to see prices going up across the board.

 

Regarding #4, Burger King was caught putting wood pulp in its burgers.

There may be more fiber in your food than you realized. Burger King, McDonald’s and other fast food companies list in the ingredients of several of their foods, microcrystalline cellulose (MCC) or “powdered cellulose” as components of their menu items. Or, in plain English, wood pulp.

The emulsion-stabilizing, cling-improving, anti-caking substance operates under multiple aliases, ranging from powdered cellulose to cellulose powder to methylcellulose to cellulose gum. The entrance of this non-absorbable fiber into fast food ingredients has been stealthy, yet widespread: The compound can now be found in buns, cheeses, sauces, cakes, shakes, rolls, fries, onion rings, smoothies, meats—basically everything.

The cost effectiveness of this filler has pushed many chains to use progressively less chicken in their “chicken” and cream in their “ice cream.” McDonald’s ranks highest on the list with cellulose integrated into 14 of their menu items including their renowned fish fillets, chicken strips and biscuits, with Burger King ranking second on the list with 13 menu items  containing cellulose. Moreover, many cellulose-laden ingredients (such as honey mustard, bbq sauce, and cheese blends) can be found in multiple items throughout the menu making the filler difficult to avoid.

http://ift.tt/1jh6B6c…

One has to wonder… just how high are real costs that a food company substitutes wood pulp for meat?

One also has to wonder… just how accurate is the CPI or any government inflation metric that looks primarily at nominal pricing? The simple answer to that one is “not accurate at all.”

Inflation is a reality. Firms around the world are doing whatever they can to maintain profits while keeping costs low. Using wood pulp instead of meat in burgers is just one more trick.

We'll be seeing more stories like this in the coming months. I wouldn't be surprised if food companies everywhere have been resorting to similar strategies.

This concludes this article. If you’re looking for the means of protecting your portfolio from the coming collapse, you can pick up a FREE investment report titled Protect Your Portfolio at http://ift.tt/170oFLH.

 

This report outlines a number of strategies you can implement to prepare yourself and your loved ones from the coming market carnage.

 

Best Regards

 

Phoenix Capital Research

 

 

 

via Zero Hedge http://ift.tt/1jh7vzJ Phoenix Capital Research

In Wenzhou – dubbed the capital of China’s private businesses – nearly 90 per cent of loan guarantors have failed since the start of the credit crisis arising from the underground banking system, according to the media. As SCMP reports, although their services are critical for the economic system and the millions of small firms – that provide the majority of the mainland’s jobs – hundreds of loan guarantee groups are creaking under the weight of bad loans and are simply unable to bear any more. “It could become the last straw that breaks the camel’s back,” exclaims the head of a local law firm, “without the privately owned small businesses, China’s economy won’t have a future.” But PMIs are up so everything’s fine?

 

As The South China Morning Post reports,

Mainland loan guarantors have found themselves ensnared in the woes of the underground banking sector following a fresh wave of bankruptcies around the country.

 

Creaking under the weight of bad debts, hundreds of guarantee groups would be unable to bear even more, although their services are critical for the economic system and the millions of small firms that provide the majority of the mainland’s jobs.

 

“It is by all means a risky business,” said Wang Xiao, a Zhejiang entrepreneur who invests in a loan guarantee business. “An increasing number of loan defaults will soon force us to close down the business.”

 

In Wenzhou, nearly 90 per cent of loan guarantors have failed since the start of the credit crisis arising from the underground banking system, according to the media.

 

The city, dubbed the capital of China’s private businesses, had pinned hopes on the companies offering capital guarantee services to bail out troubled small companies when Beijing allowed it to legalise the underground banks.

 

“It could become the last straw that breaks the camel’s back,” said Yan Yipan, the head of law firm Zhejiang Panyuan, which mainly deals with cases related to financing. “Without the loan guarantee services, it will be more difficult for small companies to do business.”

 

Rampant loan-shark schemes in Wenzhou resulted in the collapse of the city’s economy, with dozens of underground banking operators and investors either committing suicide or fleeing the country.

 

The government felt loan guarantors could bridge the gap between cash-hungry businesses and financial institutions. Borrowers without enough collateral could use loan guarantee services to access much-needed funds. The guarantors normally charge 3 per cent of the loan amount as fees.

 

“Three per cent fee looks good, but a loan default would be equivalent to the total profits made from dozens of deals,” Wang said.

 

At the end of last year, there were more than 8,000 licensed loan guarantors, with most of them focusing on serving small enterprises. The companies had a combined registered capital of 880 billion yuan (HK$1.1 trillion), according to the China Banking Regulatory Commission.

 

Online consultancy Forward said financing demands from the small firms topped 16 trillion yuan in 2012. Indeed, thousands of illegal loan guarantors have been offering guarantee services for the underground banks in the past decade. In April, a bank run in Sheyang, Jiangsu province, was sparked by the collapse of illegal loan guarantors.

 

In Guangdong, the financial authorities said more than 30 loan guarantors had failed so far this year, while in Sichuan, the provincial government revoked 12 loan guarantee licences. The problems with loan guarantors would weigh further on a mainland leadership already buffeted by complaints about the way government treats small firms.

 

“Without the privately owned small businesses, China’s economy won’t have a future,” said Song Weiping, the chairman of developer Greentown China. “They are the babies and they should be looked after carefully.”

*  *  *

As with any centrally planned economy, the facts are nebulous but it seems that between record low coal prices, multi-month high money market rates (demand for liquidity), multi-month lows in employment indices (under the covers of the PMI headlines), and the ongoing CCFD ponzi unwind that things are far from the picture of stability painted to the rest of the world.

Of course, any further actions by the government to control (or help) the situation may end up looking this…

via Zero Hedge http://ift.tt/1oBCmpn Tyler Durden