China

Chinese households’ concentration of wealth in real estate is magnifying the danger to the world’s second-largest economy of any property bust, as the nation grapples with the consequences of its record credit surge, Bloomberg News reported. Some 66.1 percent of family assets were in housing in 2013, a national survey of about 28,000 households shows. Mortgage debt as a share of disposable income rose to 30 percent from 18 percent in 2008, according to estimates by Nicholas Lardy at the Peterson Institute for International Economics in Washington.

China's onetime solar-power giant Suntech Power Holdings Co. plans to file for bankruptcy protection in U.S. court as its leaders negotiate with the holders of more than $500 million in U.S. convertible bonds, according to people familiar with the matter, The Wall Street Journal reported. Suntech Power Holdings, which was once the world's largest solar panel maker, defaulted on its U.S. debt in March, and financial professionals in the Cayman Islands—where the holding company is incorporated—have been trying to negotiate a repayment plan with bondholders.

Global rating agencies – often among the more sanguine voices on China – have warned that this week’s bailout of a soured $500m trust loan was a wasted chance to address rising moral hazard in the country’s shadow banking sector, the Financial Times reported. The words of caution follow a last-minute deal to avert the default of a Rmb3bn trust product backed by loans to a now-defunct coal mining company. The product’s issuer, China Credit Trust, on Monday said it had raised the cash needed to pay back investors from three unnamed backers.

China Credit Trust Co. started repaying investors in a high-yield product whose threatened failure spurred concern of further defaults and contributed to a sell-off in emerging-market stocks and currencies. Most clients in Shanghai, Guangzhou and Beijing signed an agreement on Jan. 28 to transfer their rights in the 3-billion-yuan ($496 million) trust to unidentified buyers in exchange for an amount equal to the product’s face value, Chang Feng, a spokesman for an investor group, and Du Ronghai, another investor, told Bloomberg by phone. Investors were given until 5 p.m.

A coal company facing repayment of a three billion yuan ($500 million) loan has received government permission to restart one of its mines as creditors and officials scramble to avoid a default that could batter confidence in China's loosely regulated shadow-banking sector. China Credit Trust Co., a so-called shadow lender, notified investors in products linked to the loan on Wednesday about the permit to resume production, according to a notice reviewed by The Wall Street Journal.

Relatives of at least five current and former members of China's top leadership are shareholders in many offshore companies, allowing them to conceal their assets, according to a report from the International Consortium of Investigative Journalists (ICIJ), the South China Morning Post reported. While being a shareholder in an offshore company doesn't constitute a crime or indicate wrongdoing, the report from the US-based group was released at a crucial moment.

China is moving ahead with reforms to overhaul its financial system by helping banks clean up their balance sheets and launching a trial program to give smaller lenders easier access to cash, The Wall Street Journal reported. The actions join a swift injection of liquidity by the central bank Tuesday into the banking sector as Beijing seeks to avert a cash crunch ahead of the Lunar New Year holiday when demand for funds rise. Under new regulations that took effect this month, Chinese banks have greater freedom to write off small loans that have turned sour.

A high-yielding investment product based on a loan to an indebted coal company is offering the latest test of China's willingness to permit defaults in its shadow banking system, Reuters reported. If the product, which is scheduled to mature on Jan. 31, fails to pay out as promised, it could shatter the widespread assumption that even risky investments carry implicit guarantees from the government and state-owned banks.

China's government is gearing up for a spike in nonperforming loans, endorsing a range of options to clean up the banks and experimenting with ways for lenders to squeeze value from debts gone bad, The Wall Street Journal reported. Write-offs have multiplied in recent months. Over-the-counter asset exchanges have sprung up as a way for banks to find buyers for collateral seized from defaulting borrowers and for bad loans they want to spin off.

China’s banking regulator told lenders to publish data including off-balance-sheet assets and interbank liabilities as the government steps up scrutiny of the shadow-finance industry. Lenders with total assets of 1.6 trillion yuan ($264 billion) or more must publish 12 indicators within four months of the end of each financial year, the China Banking Regulatory Commission said in a statement yesterday. The requirement is in line with rules published by the Basel Committee on international banking regulation in July, the CBRC said.