Tuesday, November 16, 2010

China Crash Predictions, Part 3 - Shih

For the record, it does not appear that Shih believes in a crash, just a massive bailout. He believes the Chinese government will back up the banks and since everyone knows this, there will not be a panic.

March 2010, Victor Shih, quoted in Harvard’s Rogoff Gives Legs to China Crash Talk: William Pesek
Victor Shih of Northwestern University in Evanston, Illinois, is focusing on another $1.6 trillion figure. That’s how much debt he estimates China’s local governments are sitting on. If the argument Shih fleshed out in a Feb. 8 piece in the Wall Street Journal is correct, local debt alone is one-third of China’s 2009 gross domestic product and 70 percent of foreign- exchange reserves.

Also from March 2010, Victor Shih Sees Bank Bailout Redux
According to Victor Shih, assistant professor of political science at Northwestern University — and a regular contributor to The Wall Street Journal’s opinion page (see articles here and here) — the massive increase in new lending China’s banks embarked on last year may mean that in coming years China’s banks will be faced with a huge spike in nonperforming loans and will have to again turn to the government, cap in hand, to bail them out.

June 2010, Shih: Moral Hazard and China's Banks
In China, just as in the West, banks and businesses have grown accustomed to gambling with other people's money on the assumption that the government will bail them out if they lose.

[Catch the rest of the China Crash Predictions Series]

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