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Situation deleveraging, response, risk and investment opportunities
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Source: Ze-ping macro, Author: Ren Zeping, Feng Yun
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REVIEW: deleveraging is one of the five supply-side reform task by studying the various departments of the Chinese status quo leverage by industry, analysis of the causes of high leverage, deleveraging response measures proposed in the process of deleveraging opportunities and risks.
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1. Chinese departments leverage how high?
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1.1. Government departments leverage analysis
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Central government debt is divided into two parts, and local governments, local government debt is divided into local governments bear the responsibility to repay the debt and the debt of local governments or in two parts. According to Wind, as of the end of 2015 the balance of 10.674947 trillion yuan central government bonds, agency debt balance of 1.1475 trillion yuan of government support, whereby the central government debt balance of 11.822447 trillion yuan.
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According to the 2014 introduction of the "State Council on strengthening local government debt management advice" and since the new budget law in 2015 formally implemented, China began to implement quota management of local government debt balance of local government debt scale must be reported by the State Council, the National People's Congress or the National people's Congress Standing Committee for approval. According to second session of the NPC Standing Committee 16th meeting of the end of 2015, local government debt limit of 16 trillion yuan, of which the national local government debt balance at the end of 2014 was 15.4 trillion yuan, in March 2015 approved by the NPC 2015 in the new local government debt amounting to 0.6 trillion yuan.
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Motion-second session of the NPC Standing Committee for the sixteenth meeting mentioned by the end of 2014 or the local government debt was 8.6 trillion yuan, including guaranteed government bears responsibility for the debt (according to 19.13% conversion) and the government may bear some responsibility for debt relief (according to 14.64% conversion). According to December 2013 the National Audit Office published a "national government debt audit results," By the end of 2010 or the local government debt was 4.0 trillion or so local government debt from late 2010 to late 2014 CAGR 21.1%. We assume that local government debt in 2015, or at the same rate of growth, whereby the end of 2015 or the local government debt is about 10.4 trillion, then the end of 2015, total local government debt was 26.4 trillion yuan.
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By the end of 2015, total government sector debt reached 38.2 trillion yuan, accounting for 56.5% of GDP. After the 2008 financial crisis, the government appeared leverage rapid rise in 2008 - Increased 16.5% during 2015.
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1.2. Analysis of the household sector leverage
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Because residents can not issue individual bonds, the debt of the household sector all loans. According to our financial institutions and foreign currency credit balance sheet published by the central bank, as of the end of 2015, household sector debt 27 trillion yuan. Among them, 19 trillion yuan consumer loans,louboutin, business loans 8 trillion yuan, accounting for 2015 was 39.9% of GDP. After the 2008 financial crisis, the household sector leverage a rapid rise in 2008-- 2015 period rose 21.5%, mainly from the growth of debt population growth in mortgage lending, and secondly, from car loans and credit card loans.
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1.3. Non-financial corporate sector leverage analysis
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Non-financial corporate debt comes from three aspects: traditional bank credit, financial market debt instruments issued credit financing type of shadow banks (including trust loans, entrusted loans, bank acceptances undiscounted). According to financial institutions and foreign currency credit balance sheet published by the central bank, as of the end of 2015, non-financial corporate loans 6.88 billion yuan. According to Wind bond market statistics, as of the end of 2015, the stock of non-financial corporate bonds was 14.63 trillion yuan. Trust Industry Association from the central bank to obtain By the end of 2015,air max essential 1, non-financial corporate loans 5.39 trillion yuan trust, entrusted loans 10.93 trillion yuan, undiscounted bankers' acceptances 5.85 trillion yuan.
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By the end of 2015, local governments bear the responsibility to repay the debt of 16 trillion yuan,hogan interactive uomo e donna, total removal of local government debt issuance 4.8 trillion yuan, 11.2 trillion yuan left; In addition, local governments or liabilities of about 104 000 billion. According to December 2013 the National Audit Office published a "national government debt audit results," ended in June 2013, local governments bear the responsibility to repay the debt accounted for local financing platform 37%, or local government debt the proportion of local financing platform 41%. Suppose the end of 2015 accounted for local financing platform remains unchanged, then the part can calculate the non-financial corporate debt and local government debt in the double counting of 8.5 trillion yuan.
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In total, as of the end of 2015 the total debt of non-financial enterprises was 105.6 trillion yuan, accounting for 156.1% of GDP. If local financing platform for local government debt has been included in the partial removal of a total debt of 97.1 trillion yuan, accounting for 143.5% of GDP. After the 2008 financial crisis, non-financial corporate leverage seen a sharp rise in 2008-- soared 58.1% during 2015, even without considering the local debt financing platform, leverage ratio also rose 45.4%.
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1.4. Analysis of the financial corporate sector leverage
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The main objective was to assess the estimated leverage risk, currency and deposit does not constitute a major risk or less risk in the financial sector, therefore, we first eliminate currency and deposits, only the balance of bonds issued by the financial sector as a debt. So the bond market through Wind statistics, as of the end of 2015, the balance of bonds of financial institutions 14.2 trillion yuan, accounting for 21.0% of GDP.
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If you use the McKinsey method, according to other depository corporations balance sheet published by the central bank, where the sum of the claims of other depository corporations and other financial institutions debt two calculated liabilities among financial institutions, get off at the end of 2015, financial institutions sector debt was 49.1 trillion yuan, accounting for 72.6% of GDP. (Refer to this chapter from "China National Balance Sheet 2015")
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2. Chinese society as a whole leverage measure and the international comparison
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2.1. Chinese society as a whole is estimated leverage
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Calculating the final merger above, plus total government, residents, businesses and non-financial corporate debt finance four departments, as of the end of 2015, China's overall economic size of the debt was 176.5 trillion yuan, total leverage of 260.8%. If the financial sector debt calculated according to the method of McKinsey, the Chinese economy as the overall size of the debt 211.4 trillion yuan, total leverage of 312.4%. After the financial crisis in 2008, China leveraged the whole society seen a sharp rise in 2008-- soared 90.8% during 2015, considering the method of calculating by McKinsey, the whole society leverage rises faster, 2008 - A total of 2015 rose period up 127.8 percent.
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2.2. Chinese leverage real economy and international comparison
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Since financial institutions are only financial intermediaries, non-final borrower, if the calculation of the leverage ratio of the whole society, the financial sector will also join, it will result in double counting. So when we analyze the entire Chinese society leverage, focusing on the real economy sector leverage (not including leverage of financial institutions), which is also consistent with the internationally accepted method to facilitate international comparisons.
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By accumulating government debt, residents, three non-financial corporate sector, as of the end of 2015, China's real economy debt was 162.3 trillion yuan, 239.8% rate of real economic lever. We can see that the 2008 financial crisis, China's real economy leverage a rapid rise in 2008-- 2015 period jumped 82.8%.
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Also, you can see from the international comparison, the proximity leverage real economy in China and the United States, Britain and other developed countries, at the middle level. However, non-financial corporate leverage ratio is the highest in the table, which reflects China's current overcapacity in the severity and urgency of the supply-side reforms. Lower household sector leverage, leverage government departments at the middle level. (Refer to this chapter from "China National Balance Sheet 2015")
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3. Chinese industries leverage research
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We calculate the asset-liability ratio of listed companies from various industries and industrial enterprises above designated size in two dimensions, the industry analysis China's leverage situation. Listed Company data as of the third quarter of 2015, the financial sector (banks, non-silver) and cyclical industries (construction, real estate, steel, electricity and public utilities,adidas france, etc.) the asset-liability ratio is high, and emerging industries (medical,adidas honey lo, electronic lower devices,air max 87, computers, media, etc.) and consumer services (catering and tourism, agriculture, forestry, animal husbandry and fisheries, food and beverage) asset-liability ratio. This reflects a 4 trillion since 2008 to stimulate the traditional cyclical industries generally overcapacity, balance sheet deterioration, highly leveraged enterprises and the financial sector due to excessive credit support to a cyclical industry, and leading to its leverage to remain high. On the other hand,?giubbotti peuterey 2015, new industries and consumer services in line with the direction of economic development, market demand, the industry is full of vitality, and equity-based financing, lower leverage.
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Asset-liability ratio of industrial enterprises above designated size point of view, with the overcapacity of traditional cyclical industries highly relevant upstream industrial enterprises (coal mining and washing industry, petroleum processing and coking and nuclear fuel processing industry, ferrous metal smelting and rolling processing industry,hogan interactive prezzi, non-ferrous metal smelting and rolling processing industry, etc.) balance is high, but the demand for better consumer services highly relevant downstream industrial enterprises (alcoholic beverages and refined tea manufacturing, pharmaceutical manufacturing, tobacco industry, etc.) assets and liabilities lower rates.
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4,escarpins louboutin. China rising leverage causes and issues
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4.1. China's rising leverage reason
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China after the reform and opening up, after relying on long-term advantage, to introduce foreign capital and technology, and continue to expand investment in fixed assets, increase productivity, and then digest the new capacity through export-oriented economy and urbanization, to promote rapid economic growth. After thirty years of double-digit growth, China's GDP per capita gap with the developed countries significantly reduced, the advantage is no longer obvious, especially after the 2008 global financial crisis, the bubble burst in demand in developed countries,lou boutin, combined with China's population real estate bonuses and long cycle inflection point inflection point has arrived, marking the Chinese urbanization is nearing completion, resulting in new capacity under the 2008 4 trillion to stimulate the formation of new demand for support can not be found, resulting in the traditional industries of severe overcapacity. The Government initially thought that only a cyclical problem, not aware of the need to shift China's economic growth, due to steady growth, preserve employment and other purposes, inefficient state-owned enterprises implicit guarantee, subsidy administration, policy support, resulting in a lot of excess capacity enterprise stiff and die, unable clearing excess capacity, rising leverage state-owned enterprises, a lot of money deposited inefficient sector, leading to continued deterioration in corporate profits, declining economic growth.
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4.2. Chinese leverage and risks caused by rising problem
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To leverage rising characterized by old growth model reject clearing form of real estate, local financing platform, the three major state-owned enterprises overcapacity funding black hole, rely on government endorsement of credit, financial soft constraints, plus debt leverage cycle, resulting in a large number of invalid money demand, continue to take up credit resources, the demand for financing the real economy effectively crowding, damage the efficiency of resource allocation, corporate profits and suppress the growth of a new growth model, resulting in declining economy, long-term stock market go bear.
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On the other hand, due to the Chinese rising leverage, resulting in excessive credit growth, M2 growth rate is faster than the long-term nominal GDP growth, but to make monetary velocity V = PY / M's long-term growth in negative territory in 2009, but Since 4,000,000,000,000 days the amount of investment, resulting in monetary velocity then fell 15.0%, is the lowest value ever recorded. It means the efficient use of funds decreased monetary velocity decreases, funds have continued to flow to inefficient sectors and settle down, resulting in reduced efficiency of monetary policy transmission. And because the highly leveraged corporate cash flow can not cover the cost of borrowing, highly leveraged companies have to rely on old debt to maintain the debt accumulated credit risk rising, increasing systemic risk throughout the economy.
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Policy measures 5. deleveraging
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Deleveraging are two credit-oriented, market-oriented areas are carried out every day by clearing bankruptcies and mergers and acquisitions, but by the implicit government guarantee of local financing platform for state-owned enterprises and other types of government there is a soft financial constraints, need to rely on government supply-side reforms to clearing. From the international historical experience, government deleveraging is nothing more than five cases: debt write-downs, debt monetization, increase taxes and cut public spending and reduce the wide currency interest payments and economic efficiency.
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1, debt write-down
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Government departments, state-owned enterprises are credited directly to debt reduction, in other words Repudiation. This way to leverage the fastest, but seriously damaged the government credit, often leading to currency crises and economic order out of control. This only occurs in the case of the Government of desperation, but only on the foreign debt, the government would prefer to print money to repay domestic debt, we are not willing to bear the risk of default. In addition, China's state-owned enterprises have implicit government guarantees, large-scale state-owned enterprises defaults will affect the government credit, and may cause the entire credit market freeze, because state-owned enterprises homogeneity strong, the market does not know the next step the government will give up which support state-owned enterprises. Therefore, the government is only possible to take such a radical manner under limited conditions deleveraging.
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2,felpa adidas, monetization of debt
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By the central bank issued currency to repay the government,magasin louboutin, state-owned enterprises debt. In this way small burden on the government, but it will cause inflation, but also reduces the debt by printing money for the government behavior constraints, is not conducive to curb government borrowing impulse, but cause the government and quasi government borrowing and larger central bank money printing larger, leading to hyperinflation, the government credit damage, and even cause a currency crisis and economic stagnation. So the government has taken in this way come and leverage a greater negative effect.
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3, plus taxes and cut public spending
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Government, through tax increases and cut public spending, that is to repay the debt by tightening with a surplus. And supply-side tax reform advocated by the government, tax cuts reduce the burden on enterprises and revitalize the micro-economic, more to allow the market to allocate resources to improve the economic efficiency of the opposite approach, and with the aging of China's social welfare spending will continue increase, the vast majority of government expenditure rigidity, it is difficult to reduce spending. Of course overcapacity zombie companies can cancel this invalid administrative subsidy, so we think that the Government will only take part in this way.
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4, wide currency reduce interest payments
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In 2013 the government tried to encourage high leverage sector deleveraging through high interest rates, but the department has high leverage implicit government guarantees, financial soft constraints, counterproductive, resulting in shortage of money, not only failed to make highly leveraged sector deleveraging, but may lead to market excessive clearing of the field. Therefore,nike air max 90 femme, China through high interest rates to market-oriented approach to leverage feasible.
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2014, the government began to promote a more pragmatic approach to capacity deleveraging. Loose monetary policy on the one hand to avoid enterprises encounter in the process of deleveraging,hogan donna, declining revenue, but increased the interest burden of the Davis Double-click the situation; on the other hand, in the process of deleveraging, credit risk rising debt, monetary policy You can hedge, calm market panic, do not hold the bottom line of systemic risk. Therefore, we have always stressed the reform transition process, requiring a wide + strong currency reform, one less. So wide currency will reduce interest payments is one of the measures taken by the government to leverage, including the government began allowing banks to set aside lower, local government debt replacement, promote direct financing.
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5, increase economic efficiency
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Although wide currency can reduce interest payments, but can not generate the cash flow to repay the principal key, deleveraging still need to improve the economic efficiency of the real economy, increasing the company's cash flow to repay debt, so as to lower the lever. Government's supply-side reforms, on the one hand by clearing capacity, improving supply and demand, and upgrade traditional industries of comparative advantage; on the other hand distortion correction feature configuration, freeing resources before they are highly leveraged industry invalid occupy and cultivate new growth momentum, expanding effective supply, thereby improving total factor productivity of the whole society, encourage enterprises to sustained, profitable growth to reduce leverage real economy. Therefore, to improve the quality and efficiency of economic development measures will be the primary means for the government to leverage.
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Investment opportunities and risks of deleveraging under 6
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6.1,adidas dragon homme. Deleveraging of investment opportunities in the context of
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From Japan and South Korea's experience in government policy to supply-side reform, deleveraging to production, release a lot of human and material resources in a highly leveraged industry invalid occupied after the credit and financial resources, resulting in a substantial decline in the risk-free interest rate, fixed drive income return on assets dropped significantly, there is a structural shortage of assets. Until after the success of shifting growth, interest rates before bottoming out. But the stock market after the financial needs invalid interrupt,hogan interactive donna 2011, facing down interest rates, rising corporate profits and reforms to enhance the risk appetite of the new situation, out of the ongoing bull market.
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In addition, in terms of industry, the growth rate of the shift of the second half, Japan and South Korea is stronger than the industry market, in addition to individual industries under special historical background, are in line with the direction of economic restructuring high-tech industry, such as precision instruments, information and communication , fine chemicals, high-end manufacturing, health care and so on. Underperform are construction, building materials, real estate, textile, paper and wood products, agriculture, transportation, warehousing and other traditional industries.
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China's economic growth is shifting into the second half, deleveraging eliminated excess capacity, clean up zombie companies, future investment opportunities in the key is released resources will flow to those areas? The transition from the successful experience of Japan and South Korea and the development direction of China's future economic point of view, the release of social resources constantly flowing into new areas of economic innovation and consumer economy, these new areas again mainly equity financing, we believe that economic transformation in China the second half of the investment opportunities mainly from equity investments, which is the industry leader in high-end equipment manufacturing, TMT, Internet, medical medicine, new materials,moncler sito ufficiale, recreational services and other areas. Debt financing and rely on traditional cyclical industries, in clearing capacity, supply and demand, and after the balance sheet improvement, left for the king of high-quality companies and stand out from the SOE reform in the company, potential investment opportunities.
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6.2 deleveraging risk management: a strong currency reform + W
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Clearing the deleveraging process may trigger significant risk, shadow banking collapse, commercial banks non-performing rate exposure, credit debt default risk increased, triggering a credit crunch accelerator, causing risk premiums soar, a large number of bankrupt enterprises, rising unemployment. This scenario can only rely on the central bank's wide currency to calm panic, we have always stressed that reform in transition, a strong currency reform + width can not be less. Rich current Chinese government's policy of public resources by the end of 2015, the deposit reserve ratio of large deposit-taking financial institutions 17.5%, $ 3.3 trillion foreign exchange reserves, fiscal deposits 3.4 trillion yuan, enough to have to deal with a magnitude of the financial crisis, whether it is an external impact type or implosion type.
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