TruthArchive.ai - Tweets Saved By @BaldingsWorld

BaldingsWorld
Posted - August 11, 2023 at 1:32 PM
Saved - August 12, 2023 at 4:15 PM
reSee.it AI Summary
China's Evergrande crisis is a ticking time bomb. With 17 trillion RMB in liabilities and only 9 billion in cash, the real estate giant is insolvent. If its debts were written off, it would wipe out 40% of ICBC's capital base, the world's largest bank. China's banking system is in dire straits, with unreliable NPL statistics and a lack of liquidity. This is why Beijing can't afford to stimulate the economy. The macro implications are clear: the individual events you hear about are just distractions from the bigger picture.

@BaldingsWorld - Engagement Director Balding 大老板

Twitter China Galaxy Brains continue to churn out hot takes and think pieces wondering why Communists won't suddenly go free market and why Beijing won't make it rain. I've pointed out their broke and communist. Now let's make it interesting and include Evergrande financials 1/n

@BaldingsWorld - Engagement Director Balding 大老板

As noted, Evergrande has 1.7 TRILLION RMB in current liabilities and 9 BILLION in cash on hand. If you don't have a Harvard MBA able to decipher such complex data: that's bad. This is like having $100k in the bank and a $2 million balance on the over due credit card 2/n

@BaldingsWorld - Engagement Director Balding 大老板

Evergrande assets are of course in unsold apartments but let's focus for now on a tale of the tape to provide some framework for these numbers and how it impacts the larger question of macro policy and China not having money. By ANY banking standard, Evergrande is COMPLETELY 3/n

@BaldingsWorld - Engagement Director Balding 大老板

Insolvent and these loans need to be written down to basically 0. This impacts bank liquidity because loans aren't being repaid. With me so far? So now let's get into the good part. China has not begun to grapple with Evergrande and developer bad debts and what this means 4/n

@BaldingsWorld - Engagement Director Balding 大老板

How do we know? According to official Chinese statistics, the TOTAL non-performing loan stock was under 3 TRILLION RMB at the end of 2022. Let's assume this is true: Evergrande is nearly 60% of all NPLs in ALL of China. We know that isn't true 5/n https://www.statista.com/statistics/1171742/china-non-performing-loan-stock/

China: non-performing loan stock 2022 | Statista In December 2022, the reported value of non-performing loans of the Chinese banking industry amounted to nearly three trillion yuan. statista.com

@BaldingsWorld - Engagement Director Balding 大老板

Let's frame this another way. ICBC is the biggest bank in the world with more than $5 trillion USD in assets. Their capital base amounts to 4.3 trillion RMB. For simple thought exercise purpose, if Evergrande debt was written down to 0... 6/n https://v.icbc.com.cn/userfiles/Resources/ICBCLTD/download/2023/2022CapitalAdequacyReport20230508.pdf

@BaldingsWorld - Engagement Director Balding 大老板

As it should be, this would swallow 40% of ICBC total capital base. It would eliminate 50% of their Tier 1 capital. This would essentially wipe out the largest bank in the world. Let me emphasize, while I am sure that ICBC has some business dealings with Evergrande 7/n

@BaldingsWorld - Engagement Director Balding 大老板

I do not know their full exposure to Evergrande and am ONLY using this as a simple example. So ONE Chinese developer can effectively wipe out the largest bank in the world. So let's hit what this means for the macro points. First, the banking statistics on things like NPL's 8/n

@BaldingsWorld - Engagement Director Balding 大老板

Are complete and utter garbage. Even years ago, Chinese banking analysts were estimating the true NPL ratio at upwards of 10%. At this point, that would likely be too conservative. Second, the banks do not have capital, they do not have liquidity, they are effectively broke 9/n

@BaldingsWorld - Engagement Director Balding 大老板

It isn't just demand what capital. Cash restrictions by banks are popping up more and more and we know small mid-size banks are broke. They aren't getting repaid and don't have the capital. Third, this is why Beijing isn't engaging in stimulus. Forget what it would go to 10/n https://t.co/06AOWk2R1V

@BaldingsWorld - Engagement Director Balding 大老板

Or how it would be used: if you want to argue Beijing should engage in material stimulus (i.e. not increasing from 5% to 7% spending growth) where is this money coming from? Banks got nothing. International investors don't have that amount of capital or interest 11/n

@BaldingsWorld - Engagement Director Balding 大老板

So where is this money coming from? Where? 12/n https://t.co/A60Smd5fas

@BaldingsWorld - Engagement Director Balding 大老板

So when you hear that "Beijing just needs to do X" to return things to normal understand the individual events you hear about and how this impacts the macro-BS you are being sold.

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