Bad Loans in Wenzhou at Ten Year High

Non-Performing Loans in Wenzhou Surge to Ten Year High

The ratio more than doubled from 1.33 percent in January to 2.69 percent as of the end of June. Zhang Zhenyu – the official responsible for regulating Wenzhou banks – said commercial banks in the city are well positioned to absorb NPL ratios as high as 4 to 5 percent, according to Caixin Online. He also said only 0.5 percent of the NPL's or less than 1 billion yuan were expected to default.

The numbers seem low, overall, given other quotes that sour loans to SMEs are 30-40% of book. If one assumes the numbers are fabricated and then numbers can be reported as anything, then this seems like a strong signal from the banks to the powers that be that something has to change.

It's clear that investments are starting to go bad in the traditional banking sector in Zhejiang, and that could be ominous for the country's enormous shadow banking system, which comprises around 20 percent of all of renminbi-denominated loans in China. After all, shadow banks lend to much riskier borrowers who can't typically get loans from traditional banks.

. . . many of them appear to be no more than a leveraged play to arbitrage between official (low) interest rate and market driven (high) interest rate. With this type of business model, the music tends to stop when loan demand starts to weaken and their investments start to go bad. Their thin capital base can be wiped out fairly quickly when this happens.

On China's fudged data, Lying Libor Is Nothing Compared to China’s Fake GDP: Report

Annual gross domestic product came in at 7.6 percent in the second quarter, according to China’s government on July 13th. The report was better than investors expected, easing concern of a dramatic slowdown for the world’s second-biggest economy and sparking a bid in risk assets like stocks that has lasted for two weeks. But slowing imports and industrial production, as well as harder-to-fudge electricity usage data, points to much slower growth, according to McDonald and other investors. Barclays believes the number should have been more like 7.15 percent.

Add onto that recent reports of coal piling up at power plants because electricity demand is falling.