Is China's New Muni Transparency A Public-to-Private Risk Transfer Trap? - News and Current Events | futures trading

Go Back

> Futures Trading, News, Charts and Platforms > Traders Hideout > News and Current Events

Is China's New Muni Transparency A Public-to-Private Risk Transfer Trap?
Started:November 15th, 2011 (03:40 AM) by Quick Summary Views / Replies:190 / 0
Last Reply:November 15th, 2011 (03:40 AM) Attachments:0

Welcome to

Welcome, Guest!

This forum was established to help traders (especially futures traders) by openly sharing indicators, strategies, methods, trading journals and discussing the psychology of trading.

We are fundamentally different than most other trading forums:
  • We work extremely hard to keep things positive on our forums.
  • We do not tolerate rude behavior, trolling, or vendor advertising in posts.
  • We firmly believe in openness and encourage sharing. The holy grail is within you, it is not something tangible you can download.
  • We expect our members to participate and become a part of the community. Help yourself by helping others.

You'll need to register in order to view the content of the threads and start contributing to our community. It's free and simple, and we will never resell your private information.

-- Big Mike

Thread Tools Search this Thread

Is China's New Muni Transparency A Public-to-Private Risk Transfer Trap?

Old November 15th, 2011, 03:40 AM   #1 (permalink)
Quick Summary
Is China's New Muni Transparency A Public-to-Private Risk Transfer Trap?

For the first time since 1949, when the Communist Party took power, China will open the regional authority debt markets (muni markets) to the public. According to a Bloomberg report this evening, in a an effort to restructure the 10.7tn Yuan ($1.7tn) local government debt markets, they will be required to publish annual reports and will stipulate clearer obligations than the existing frameworks currently rely on. Much is being made of the fact that this first issuance - for Shanghai no less - enabled it to dramatically cut its interest expense - as investors were clearly comforted by the documentation. However, we worry that that this will cause a multi-tier market to evolve very rapidly between the haves and have-nots as we suspect the more than 6000 companies set up by local governments will bifurcate just as the Chinese IPO market did in the US.

Trust is key and these bonds will assuredly meet with demand - given their implicit guarantees from central government (and currency exposure and yield pick up) - but it is realistically a way to start enabling the huge stimulus that was 'lent' to be rolled on from public to private markets. Color us skeptical but when we read the Wall Street Journal's story on Wenzhou's Annus Horribilis this evening, even vibrant thriving (over-stretched and over-levered) city-states are feeling the recoupling pain of a European recession, US residential construction depression, and European bank deleveraging impacting credit conditions in Asia.

Bloomberg: Shanghai Cuts Rates in Nation's First Muni Bonds (annotated)

This is going to really improve the transparency in this part of the market,” said Mike Werner, an analyst at Sanford C. Bernstein & Co. in Hong Kong.

“They are investments of safety and good value," Chen Qiwei, a senior bond trader at Shenzhen Development Bank Co. in Shanghai said. "Because the central government is still making the payments on behalf of the local authorities, there won’t be any default risk.”

Yields on their debt started to rise in the past year as Standard & Poor’s estimated that as much as 30 percent of lending to the government entities may go sour.

Entities set up by local governments owed 10.7 trillion yuan at the end of last year, 42 percent of which was in 2011 and 2012, according to a June report by the National Audit Office. Forty-four percent of the debt was from city-level governments, the report said, and 30 percent from provinces.

Shanghai’s sale “is a breakthrough in the local governments’ financing system,” said Wang Jianhui, an analyst in Beijing at Southwest Securities Co. “It doesn’t ease concern over defaults at certain cities loaded with debt but it certainly does promote transparency.”

WSJ: Wenzhou's 'Annus Horribilis' Shakes China (annotated)

Wenzhou—the birthplace of China's private sector, where entrepreneurs have splurged on Bentleys and helicopters—is cracking...

the trust-based financing networks that took the place of banks in Wenzhou and fueled its binge are collapsing in the face of slowing exports, a trend made worse by Europe's economic woes. Property prices are down. Captains of local industry have fled from debts, sometimes escaping loan sharks by taking their own lives, local authorities say...

Its stumbling local economy has much of China fretting whether trouble for Wenzhou's famously nimble manufacturers heralds broader danger…"In Wenzhou, you see the temperature of China," says Geng Xiao, director of research at Fung Global Institute, a Hong Kong think tank. "This is the capital city of China's private enterprises."

Anxiety is mounting that Wenzhou's troubles are a bad omen beyond the hills that ring it. Ruthless price competition from factories in places like Wenzhou helped China become the No. 1 merchandise-exporting nation...

Wenzhou wealth capitalized a nonbank financing system where relationships matter more than collateral. Traditionally a system for channeling friends-and-family money, the shadow financial system has ballooned. IHS Global Insight analysts estimate Wenzhounese control capital of 800 billion yuan (about $157 billion), or 2% of China's 2010 gross domestic product...

Huang Weijian repeatedly cites "panic" to describe how in recent months his fellow Wenzhou moneylenders decided cash was safest in their own pockets.

The bottom-line is more openness is better, more transparency is better, and meeting the demands of yield hungry money managers is reasonable but we hope they go in with eyes wide open as we suspect this move is much more about risk transfer from the public central planner's balance sheet and on to the private capital markets of the world.

(h/t MM)

More on ZeroHedge...

Reply to share your thoughts on this current event.


Reply > Futures Trading, News, Charts and Platforms > Traders Hideout > News and Current Events > Is China's New Muni Transparency A Public-to-Private Risk Transfer Trap?

Thread Tools Search this Thread
Search this Thread:

Advanced Search

Upcoming Webinars and Events (4:30PM ET unless noted)

NinjaTrader 8: Programming Profitable Trading Edges w/Scott Hodson

Elite only

Anthony Drager: Executing on Intermarket Correlations & Order Flow, Part 2

Elite only

Adam Grimes: Five critically important keys to professional trading

Elite only

Machine Learning Concepts w/FIO member NJAMC

Elite only

MarketDelta Cloud Platform: Announcing new mobile features

Dec 1

NinjaTrader 8: Features and Enhancements

Dec 6

Similar Threads
Thread Thread Starter Forum Replies Last Post
Recovering from the trap of Prediction Surly Psychology and Money Management 7 May 17th, 2011 05:36 PM
Week Ahead: Transparency at the Fed, a Gusher of Earnings Quick Summary News and Current Events 0 April 22nd, 2011 03:40 PM
Non-USA traders, do you transfer balance back to your currency ? MetalTrade Brokers and Data Feeds 6 November 24th, 2010 02:36 PM
Easy computer sync & file transfer Ryanb Tech Support 4 September 23rd, 2010 04:58 AM
Transfer of Indicator from ninja to tradestaion incometrade EasyLanguage Programming 1 August 22nd, 2010 12:47 PM

All times are GMT -4. The time now is 11:34 AM.

Copyright © 2016 by All information is for educational use only and is not investment advice.
There is a substantial risk of loss in trading commodity futures, stocks, options and foreign exchange products. Past performance is not indicative of future results.
no new posts

Page generated 2016-10-26 in 0.06 seconds with 19 queries on phoenix via your IP