FinanceAsia Magazine

Issue: February 2014

China’s year of living dangerously
 
China's bailout of a trust product during January likely defended economic growth but perpetuated the moral hazard in a country with a zero-default policy.
 
Balancing stability and reform will become even harder as the year progresses; the bill from China's post global financial crisis stimulus binge is falling due and money-market rates have surged since last June.
 
The troubled trust product, with an exposure of about $500 million to a Chinese coal mine, was sold nationally by one of the world's biggest banks ICBC. The moral hazard is the implicit guarantee that investors in banks' bundles of wealth management products will be made whole whatever happens by state-backed lenders.
 
It is unclear who bailed out the trust fund, whose biggest shareholders are state-owned enterprises, but they only succeeded in pushing principal repayment further down the road.
 
Financial stress will grow this year as the under-regulated shadow banking system, of which trusts are a big part, looms ever larger and the central government cracks down on credit growth. Analysts estimate $874 billion in trust products will mature this year, up 50% year-on-year.
 
Global investors' worries about China's monetary tightening prompted wider emerging market distress in February, although to a lesser extent than Federal Reserve policy.
 
Financial institutions have failed before in China but work-outs using tax-payer funds meant the principal was eventually repaid.
 
A principal default where investors lose their shirts would force markets to price risk correctly ­ on the other hand avoiding a major default held back knock-on effects difficult to imagine. One analyst likened it to a Bear Stearns moment.
 
The message from China's leaders seems clear ­ growth first, reform second.
 
 
Alison Tudor-Ackroyd, editor
 
 
 

About FinanceAsia Magazine

Established in 1996, FinanceAsia is the leading publisher of financial news in the Asia-Pacific region. Our combination of print and online products provide the latest news, analysis and insight into Asia’s financial markets.

Published monthly from our office in Hong Kong, FinanceAsia magazine provides our readers with the latest financial trends, interviews, features and investigative reports. The publication has a readership of key decision-makers at corporations, governments, investment and commercial banks, institutional investors, asset managers, brokers, traders and financial intermediaries.

Our regular sections include:

Data Story
We look at the key data behind a topical theme in Asian finance, showcased with an array of graphs and tables.

Greenshoe
A monthly opinion column from the FinanceAsia editorial team. We provide our thoughts on a topic making the headlines.

Deal of the Month
Our regular two-page spread with its signature artwork and in-depth analysis examines the equity, debt or M&A deal that we feel has had the biggest impact on the Asian capital markets that month.

Investor Dialogue
For company CEOs and CFOs, what investors think is a critical concern, and in this column we help them understand just this. Each month we speak to a Chief Investment Officer of a top fund and outline their views on corporate governance, what stocks they like and where they expect to generate the best returns.

Soapbox
A monthly opinion piece from a respected author or commentator on Asian business, finance or economics.

People on the Move
Here we summarise the key hires, fires and moves at the region’s banks, highlighting at least one major move each month.

Deal Tracker
We examine the major primary markets deals of the month and comment on the quality of the debt or equity transaction and the secondary market performance.

The Arts of Finance
A light-hearted look at investment opportunities surrounding the arts business in Asia.

 

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