Reuters out today with a must read piece on China’s deteriorating commercial bank loans to the country’s steel sector, which now has a total debt burden of $400 billion, about the size of South Africa’s economy.
Could this be one of the reasons why the Chinese government is dragging its feet on another round of stimulus?
China’s banks are coming after the country’s steel traders, hauling executives into court to chase down loans that some traders said they didn’t initially need and can’t now repay.
The heavy push to recover the loans is another sign of strain on China’s financial system at a time when the country’s leaders are contemplating another round of stimulus to boost the economy, and when banks are worried about bad debts piling up.
This is incredible,
The battle between the banks and steel traders also exposes flaws in the 4 trillion ($629 billion) stimulus round in 2008, and offers a warning to those calling for pumping more money into the system. At that time, Chinese banks threw money at the steel trade – a crucial cog in supplying the country’s massive construction and infrastructure growth.
But those steel loans, after offering a quick fix, became excessive, poorly managed, or a combination of the two. Government officials insisted more money was needed to prop up the industry. Steel executives said the money flow was too heavy, and they had to put the money to work in real estate and the stock market.