China's Big Bang Bombshell: Beijing Opens Financial Sector To Foreign Ownership, But Why Now?

The key question regarding China’s “Big Bang” moment is whether the motivation was mainly directed at placating Trump, who was always going to return to the trade issue, which had been a major part of his campaign. That was undoubtedly part of it, although Trump’s APEC speech in Vietnam in which he reverted to slamming China for its trade practices has probably caused some loss of face and irritation in Beijing.

However, what if it was more than that… and here we return again to China’s need to deflate its obscene credit bubble in an orderly fashion. No matter if we view it as a near impossibility. However, they at least need to try and outgoing PboC Governor, Zhou, has been warning of “Minsky’s moments” and “debt disguised as equity” in the last few weeks.

China’s credit bubble is far more fragile than most western investors want to acknowledge and the local authorities know this only too well. Consequently, we were impressed by these comments from Bloomberg’s Shuli Ren, who’s thinking along the same lines. Her angle, and China’s credit bubble is awash wish them, is non-performing loans and medium-sized banks.

China desperately wants to recapitalize its mid-sized joint-stock commercial banks, which it sees as posing systemic risks. Last year, the People's Bank of China said that if a mid-sized bank were to default, on average, four to five other lenders would also be affected and more than 8 per1cent of the industry's capital would be wiped out. Taking a look at 41 publicly listed Chinese banks shows that only the very largest -- Industrial & Commercial Bank of China Ltd., China Construction Bank Corp., Bank of China Ltd. and China Merchants Bank Co. among them -- are reasonably capitalized. Plenty of lenders, from Postal Savings Bank of China Co. to Bank of Jiangsu Co., are in need of cash. Except for China's largest banks, mid-sized and regional lenders are in need of greater capital buffers.

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