For years, reports that China’s banking system is at risk mostly have been ignored. Now, though, investors are listening as Chinese officials have admitted to problems in the Chinese banking system and its economy.
From March 14’s Financial Times:
China warning on defaults sparks fears over growth
Bad debts on rise * ‘Lehman moment’ concerns * Global markets jittery
The admission was by none other than Li Keqiang, China’s premier, who has a PhD in economics. Defaults on “. . . bonds and other financial products are ‘unavoidable’. . .” the FT quotes Li as saying. “In the past, the government has always stepped in to bail out companies but Mr Li has decided to allow several, mostly privately owned, companies to default on their debts. . . “
“Chinese steel mills are struggling with severe overcapacity, heavy debt loads and a softening market and more than half of them are losing money, by some estimates.”
However, the premier has pledged that “. . . the government would take steps to ensure that failures did not pose a threat to the financial system.”
Just what is it that the government can do to ensure no threat to the financial system? Print renminbi, just as the Fed prints dollars. The printing of money fiat money has become the solution to all financial problems, whether in capitalistic or communist systems.
For the week, gold is up $40 and the Dow Jones Industrials are down 350 points, understandable reactions to the news.