The Financial Collapse of 2001 Unwinding Message Board

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Strategies & Market Trends : The Financial Collapse of 2001 Unwinding

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To: Snowshoe who wrote (1673)	1/7/2019 11:50:03 AM
From: Elroy Jetson	1 Recommendation Read Replies (1) of 13800

External Chinese Dollar Debt has been borrowed by the Hong Kong and Singapore subsidiaries of Chinese companies with significant Dollar borrowing by Chinese municipalities. Dollar denominated debt was issued domestically in China, lent by individuals and companies who had earned Dollars. When that supply of US Dollars tapped out when China imposed currency controls, China turned to the residents of Hong Kong and Singapore with Dollar savings to lend. Remember the Hong Kong Dollar is pegged to the US Dollar. No banks or nations have made any US Dollar loans to China because it's too risky. But Chinese residents of Hong Kong and Singapore have been more trusting Jay Chen has repeatedly posted his family's purchasing Chinese bonds denominated in US Dollars from their personal savings, having listed some of the various Dollar denominated bonds his family has purchased offering very attractive yields. On the surface the returns are wondrous with yields on Chinese below-investment-grade borrowers having reached 4-year highs. Last week, Times China Holdings Ltd. and Hengda Real Estate Group Co. both priced two-year dollar offerings at an eye-wateringly high rate of 11 percent ! The problem is the value of the Chinese Yuan has fallen 6% while the Chinese economy has gone slack. The "Financial Times" reported that 385 billion yuan ($55 billion) of local-currency debt and $15 billion of dollar debt will come due next year for Chinese property developers. Far more Dollar debt will need to be rolled-over in other industries. For example, a $100 million bond paying an 8 percent coupon cost a Chinese company 52.8 million yuan in annual interest when the USD–CNY exchange rate was 6.6. Now with the Yuan down by 6 percent against the US Dollar, the annual interest cost has increased by 3 million yuan to almost 56 million yuan per year. If the Yuan falls further against the Dollar it will be even harder for the Chinese government, municipalities, and companies to repay this Dollar debt to the wealthy and Middle Class lenders in Honk Kong and Singapore. I've previously suggested to Jay it is likely at some point China will no longer be able to support the Hong Kong Dollar peg and Hong Kong assets will be forced into the Yuan currency. It's looking ever more likely with each passing month. Jay became increasing short-tempered with these "anti-Chinese" comments. Effectively China has indirectly funded the Belt and Suspenders loans to Third World nations by hoovering up the savings of Chinese residents of Hong Kong and Singapore. These borrowers may not be repaid, or may be repaid in rapidly depreciating Yuan equivalent - effectively "nationalizing" their savings for the greater good of the Chinese communist state.

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