Circulating In China's Financial System: More Than 200 Billion In I.O.Us

[Stockolio]

This is the end game part of the ponzi cycle... This is check-mate for their banking cycle

https://www.nytimes.com/2019/08/06/business/china-cash-commercial-acceptances.html

SHENZHEN, China — China was on the cusp of the biggest building boom the world had ever seen when Zhang Zhiyang started his architecture firm. It was 2007, and the money rushed in for contracts to design residential complexes and an exhibition hall.

These days, with China’s economy slowing and his own business dropping off, Mr. Zhang can’t seem to get paid on time. He is now accepting the financial equivalent of i.o.u.s from as many as one-third of his clients instead of cash.

“It wasn’t like this before,” he said. But, he added, “it’s better than nothing.”

China’s trade war with the United States has escalated in recent days, posing a growing threat to an already slowing economy. Beijing needs private businesses like Mr. Zhang’s and his clients to help rekindle growth and provide paychecks to Chinese workers.

But many of those private businesses are short of cash. Instead, more than $200 billion in i.o.u.s — known in the dry world of finance as commercial acceptance bills — are floating around the Chinese financial system, according to government data.

 

[Stockolio]

China is not running out of money. But Chinese banks are reluctant to lend to private businesses because they consider big, state-owned enterprises more reliable in paying off their debts. Alternative sources of money have dried up as regulators have cracked down in recent years on China’s shadowy world of unofficial lending.

So a growing number of companies are issuing i.o.u.s to their suppliers. Some suppliers turn around and use the notes to pay another supplier. And then — in a sign of how desperate some Chinese companies have become for money — they sell the notes for less cash than they are worth.

Recent Chinese history suggests these financial dealings could end badly. Two decades ago, when the Chinese economy was growing too fast for regulators to handle, so many i.o.u.s were passed around by state-owned enterprises — an estimated $86 billion in today’s money, then totaling nearly one-fifth of China’s economic output — that the Chinese business world seized up. The government had to intervene, restructuring the debt and writing much of it off.

“You had companies holding stacks of paper,” said Dinny McMahon, an author and research fellow at the Paulson Institute in Chicago.

“The fact that these things are proliferating again at a time of entrenched economic downturn should be a signal of the degree of distress that companies are finding themselves in,” Mr. McMahon said.

Commercial acceptance bills are not legal tender. Rather, they are pieces of paper promising payment in the future. Companies owed some $211 billion in these informal notes as of February, the most recent government data available, an increase of more than one-third from the previous year.

 

[Stockolio]

Bigger companies like Zhubo say they can deal with the cash shortage for now. They can negotiate to get interest on top of the amount due. They can sell i.o.u.s to investors for less than face value.

For smaller companies, Mr. Xu said, it is much harder to wait for months before being paid. Many property companies have not survived the shift. Through July, 281 had declared bankruptcy this year, according to court filings. About 200 declared bankruptcy over the same period last year.

Today, one of the biggest issuers of i.o.u.s is China’s largest and best known property company, Evergrande. By the end of last year it had issued nearly $20 billion worth of i.o.u.s to its suppliers. With a towering $100 billion debt pile and a penchant for raising bonds to pay off the interest, it appears to have turned to commercial acceptance bills to help cover costs.

“Commercial acceptance bills are only a tiny part of the whole payment,” said Chen Zhaohua, a spokesman for Evergrande. He added that it was a form of payment “agreed by both parties of a transaction.”

Bauing Construction Holding Group, a big supplier of design and materials to China’s biggest property developers, has disclosed that it is owed $96.4 million in these i.o.u.s from Evergrande. It also recently disclosed a long list of other companies that owe it money in the form of similar notes. Gao Sheng, a spokesman for Bauing, declined to comment.

Another company that owes Bauing money is the state-owned firm China State Construction Engineering. China State said it had owed $490 million in i.o.u.s to all of its suppliers at the end of last year.

Another major property developer, Greenland Holding, which was founded by the Shanghai government and has property developments in dozens of cities across China, had $550 million worth of unpaid notes out to suppliers by the end of last year, according to its annual report. The company said that was 10 times the amount it had outstanding in 2017.

 

[Stockolio]

China is crashing as we speak! The prophecy has come true!!! Yuan is at 7.09, they can no longer defend it, only in sporadic moments it seems... 500 Billion in IOUs is the death blow to the economy

 

[Sig]

How is that any different from accounts receivable? At any given time I have A/R in the millions, about 10% of my annual revenue given that most of my customers are net 30 and a few pay late. My company isn't uncommon in the B2B world, so if you added up the A/R balance of every B2B company in the U.S. the number would be a heck of a lot bigger than $500B I would think. And I don't think that's a sign of weakness, per se.

 

[Scataphagos]

This is the end game part of the ponzi cycle... This is check-mate for their banking cycle

Still not as bad as American DemoCraps.... who pilfered the assets of Social Security and replaced them with "non-fungible IOUs". Bastards!

At least the Chinese can trade their IOUs... sort of like factoring receivables.

 

[bone]

Still not as bad as American DemoCraps.... who pilfered the assets of Social Security and replaced them with "non-fungible IOUs". Bastards!

At least the Chinese can trade their IOUs... sort of like factoring receivables.

Both sides are terrible at spending money frivolously. If you see everything in the light of political talking points then that's unfortunate. I've come to the realization that citizens have become more accepting of political talking points as reality than the actual politicians spewing forth the drivel.