China

Most of the world’s best-performing bank stocks are now in China, a nation that’s barely started to recover from last year’s liquidity crunch, Bloomberg News reported. After snapping up Ping An Bank Co., traders have turned their attention to its larger rival China Merchants Bank Co. The Hong Kong shares jumped 15 percent in nine days through Monday to an all-time high, the longest winning streak since 2007. It was also near a record in the onshore market Tuesday.

The global economy has slowed sharply since last summer and will rely on a “precarious” boost from a few emerging markets to reverse the loss of momentum, the IMF has predicted in its latest economic forecast, the Financial Times reported. Cutting its outlook for 2019 and 2020, the fund judged that advanced economies would “continue to slow gradually” into next year while emerging economies would play a more positive role, led by an end to crisis conditions in Turkey and Argentina and stabilisation in the all-important Chinese growth rate.

China’s central auditing authority has sounded the alarm on a surge of bad debt at small banks around the country, raising the question of whether Beijing will continue to bail out struggling lenders or eventually allow some to go bankrupt, the Financial Times reported. The National Audit Office said that some banks in Henan province in central China had recorded 40 per cent of their loan books as bad debt by the end of 2018, the first official disclosure in decades of such high rates of toxic assets.

One of China’s top commodity traders, Tewoo Group, is selling copper at below market rates as it grapples with a liquidity crunch, according to people with knowledge of the matter. The company, which is owned by the local Tianjin government, is offloading some refined copper stocked in bonded zones as it unwinds financing deals with some banks, said the people, who asked not to be identified as the information isn’t public, Bloomberg News reported. The metal is used as collateral in financing agreements or committed assets in so-called repurchase agreements with banks, they said.

A series of bankruptcy filings by major private-sector bond issuers in China’s third-wealthiest province is shining a spotlight on aggressive efforts by local governments to manage unsustainable debt loads, Bloomberg News reported. Four debtors have entered bankruptcy procedures since the start of November in Dongying, a city of 2 million in the eastern province of Shandong that once thrived with a booming tire-making industry. While China sees thousands of bankruptcies each year, instances of court-led restructuring of publicly issued bonds have been rare.

In a related story, The Wall Street Journal reported that ineffective monetary policy is hindering Beijing’s efforts to pep up growth, with little of the extra cash it has pumped into the financial system filtering into the real economy. China’s government is taking other measures to stimulate economic expansion, including tax cuts and selective spending on infrastructure. Yet this stimulus is likely to be less effective than before, given a much larger economy and years of rapid debt growth—making central bank action more important.

Financial markets are in danger of jumping to the wrong conclusion in their euphoric reaction to China’s record level of lending in January and February. They seem to be assuming that history is repeating itself, with the economy set to enjoy the same impact from stimulus spending in 2019 as it did in 2009 and 2016. But the available evidence suggests a very different conclusion, and one not so positive for financial assets, the Financial Times reported in a commentary. On the surface, this year’s jump in China’s total social financing (TSF) seems to support the bullish argument.

A quarter-century ago, Beijing Electron teetered on the brink of collapse, a government behemoth brought to its knees by superior foreign technology. Decades later, fueled by billions in state funds, a re-christened BOE Technology Group Co. does business with Apple Inc. and has its sights on becoming the biggest supplier of next-generation screens, Bloomberg News reported. It’s a turnaround authored by Wang Dongsheng, an accountant who took over an ailing vacuum-tube factory -- then begged his underlings for bailout money, at one point dabbling in producing mouthwash to make ends meet.

China’s HNA is selling down its prized airline holdings, a strategy reversal that underlines the scale of its struggle to pare its debt burden, the Financial Times reported. The sale on Wednesday of budget carrier HK Express to Hong Kong flag carrier Cathay Pacific comes as problems grow for the finance-to-aviation conglomerate, once among China’s most globally acquisitive companies. In the past two years HNA has sold more than $40bn in assets to trim a debt pile twice that size.

There’s plenty of bad debt to go around for investors in distressed assets in China. The question is how to extract value from them. For years, Chinese banks shoveled nonperforming loans to asset managers set up by the government, which sought to get back what they could while warehousing what was irrecoverable. Now, as commercial lenders try to shift record amounts of soured loans off their books, these assets are finding a home outside the state-sanctioned bad debt managers, a Bloomberg View reported.