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The Anatomy Of Panic: How A Rumor Mutated Into A Three-Day Chinese Bank Run | Zero Hedge

The Anatomy Of Panic: How A Rumor Mutated Into A Three-Day Chinese Bank Run | Zero Hedge.

Yesterday we showed the end result of what happens in a China, in which bankruptcy and default are suddenly all too real outcomes for the country’s hundreds of millions of depositors, when the risk of losing all of one’s money held in an insolvent bank becomes a tangible possibility in “What A Bank Run In China Looks Like: Hundreds Rush To Banks Following Solvency Rumors.” Today, we look in detail at all the discrete elements that culminated with hundreds of Chinese residents lining up in front of a bank in Yancheng and rushing to withdraw their money only to find their money not available (at least until the regional government was forced to step in with a bail out to avoid an even greater panic).Why is this a useful exercise? Because since we will certainly see many more example of it in the near future, it pays to be prepared. Or least it certainly prevents one from losing all of their money…

This is what happened, and when it happened, it happened quick. From Reuters:

The rumour spread quickly. A small rural lender in eastern China had turned down a customer’s request to withdraw 200,000 yuan ($32,200). Bankers and local officials say it never happened, but true or not the rumour was all it took to spark a run on a bank as the story passed quickly from person to person, among depositors, bystanders and even bank employees.

Savers feared the bank in Yancheng, a city in Sheyang county, had run out of money and soon hundreds of customers had rushed to its doors demanding the withdrawal of their money despite assurances from regulators and the central bank that their money was safe.

 

The panic in a corner of the coastal Jiangsu province north of Shanghai, while isolated, struck a raw nerve and won national airplay, possibly reflecting public anxiety over China’s financial system after the country’s first domestic bond default this month shattered assumptions the government would always step in to prevent institutions from collapsing.

 

Rumours also find especially fertile ground here after the failure last January of some less-regulated rural credit co-operatives.

And since nothing beats a first person account here is just that, courtesy of Jin Wenjun who saw the drama unfold.

He started to notice more people than usual arriving at the Jiangsu Sheyang Rural Commercial Bank next door to his liquor store on Monday afternoon. By evening there were hundreds spilling out into the courtyard in front of the bank in this rural town near a high-tech park surrounded by rice and rape fields.

Bank officials tried to assure the depositors that there was enough money to go around, but the crowd kept growing.

In response, local officials and bank managers kept branches open 24 hours a day and trucked in cash by armoured vehicle to satisfy hundreds of customers, some of whom brought large baskets to carry their cash out of the bank.

Jin found himself at the bank branch just after midnight to withdraw 95,000 yuan for his friend from a village 20 kms (12 miles) away.

“He was uncomfortable. It was late and he couldn’t wait, so he left me his ID card to withdraw his cash,” Jin said.

By Tuesday, the crisis of confidence had engulfed another bank, the nearby Rural Commercial Bank of Huanghai.

“One person passed on the news to 10 people, 10 people passed it to 100, and that turned into something pretty terrifying,” said Miao Dongmei, a customer of the Sheyang bank who owns an infant supply store across the street from the first branch to be hit by the run.

Claiming to be a Yancheng resident, one user of Sina Weibo’s Twitter-like service repeated the story on Monday about the failed 200,000 yuan withdrawal, adding that “rumours are the bank is going bankrupt.”

When later contacted by Reuters online, he said he had heard the rumour from his mother when she came back from town. Huanghai and Jiangsu Sheyang banks declined to comment.

China’s banks are tightly controlled by the state and bank bankruptcies are virtually unheard of, so the crisis has baffled many outsiders.

Yet in Sheyang, fears of a bank collapse resonate.

In recent years, this corner of hard-strapped Jiangsu province has experienced a boom in the number of loan guarantee, or ‘danbao’, companies and rural capital co-operatives.

These often shadowy private financial institutions promised higher returns on deposits than banks, but many have since failed.

Qu Guohua, a spiky haired former migrant worker in his 50s, nearly lost 30,000 yuan in a credit guarantee scheme that went up in flames.

What saved him one day in January 2013 was a tip-off from a friend at a rural co-operative just down the street from the loan guarantee company where he had his money.

He told me the other one was going to go out of business and I better go get my money quick,” he said.

Qu managed to get his cash, but others behind him in line were not so lucky, he said.

That helps explain why lines formed so quickly once the rumours started circulating this week. Luck has it, he deposited the cash in a bank next door: Sheyang Rural Commercial Bank.

Banks are different than credit co-operatives and guarantee companies in that they are regulated by China’s banking watchdog and subject to strict capital requirements.

On Wednesday, officials’ painstaking efforts to drive that message home were in full swing.

Bank managers stacked piles of yuan behind teller windows in full sight of customers to try to reassure them that they had plenty of cash on hand. Local officials used leaflets, radio and television to try to calm nerves.

Near one of the troubled banks, a branch of the China Commercial Bank – one of China’s ‘Big Four’ state-owned banks – was running a ticker message on an electronic board over the entrance stating: “Sheyang Rural Commercial Bank is a legal financial organisation approved by the state, just like us”.

While small groups of depositors still gathered at several bank branches in and around this part of Yancheng, some arriving by motorbike, others by three-wheeled motor vehicles common in the Chinese countryside, there were signs that the banks’ efforts were bearing fruit.

Jin said he did not panic when the rumours were spreading and on Wednesday, like many others, he made a deposit.

Others, like Qu, are holding their nerve. On a visit to see his hospitalised daughter, he decided to nip into a local bank where he still has about 10,000 yuan – just for a look.

“I’m not nervous about my money in the bank. It’s protected by national law.

* * *

The same international law that “protected” the Cyprus banking system?

In the meantime, perhaps one should ask: why is it that people everywhere around the globe are so jittery, be it Chinese bank depositors, or E*trade baby high frequency “investors” in US stocks?Is it because everyone sense that fundamentally the system is more broke and insolvent than ever?

* * *

In short, the US has a stock market, which everyone knows is fake and manipulated, but as long as it keeps going higher, it is “safe” to put even more cash into epically overvalued equities. And since everyone is confident they can pull their money before everyone else does, the downswings are sharp and violent (and usually require the Plunge Protection Team to get involved and halt them), and in many ways a complete one-sided panic.

Just like in China. Only in China, instead of being stuck behind their computers, people actually have to go out on the street and withdraw their physical cash before everyone else does.

The problem, of course, is that once the lies and the illusions end, and they will, there will not be enough physical claims to satisfy everyone, be it due to a deposit or equity flight. Because in a fractional reserve system already stretched to the max and leveraged to record levels, one thing is certain: once the upward momentum dies, only devastation and guaranteed 90%+ losses for most, await.

Crimea Annexation Into Russia: Putin Approves Draft Treaty To Absorb Peninsula

Crimea Annexation Into Russia: Putin Approves Draft Treaty To Absorb Peninsula.

Reuters
Posted: 03/18/2014 2:57 am EDT Updated: 03/18/2014 3:59 am EDT
President Vladimir Putin approved a draft treaty to make Crimea part of Russia, the  Kremlin announced on Tuesday. (Photo by Sasha Mordovets/Getty Images)


MOSCOW, March 18 (Reuters) – President Vladimir Putin has approved a draft treaty to make Crimea part of Russia, the Kremlin said on Tuesday, confirming that Russia plans to make the southern Ukrainian region part of Russia. It said he would sign the treaty with Crimea’s leader.

Putin signed an order on Monday “to approve the draft treaty between the Russian Federation and the Republic of Crimea on adopting the Republic of Crimea into the Russian Federation”.

The order was part of a series of steps to bring Crimea into Russia after voters there approved the move in a weekend referendum that Ukraine and the West have called denounced by Ukraine and the West as illegal.

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Putin calls for three languages in Crimea — Russian, Ukrainian, Crimean Tatar — to be under equal footing. http://t.co/kjYPpSM5kf

— CNN Breaking News (@cnnbrk) March 18, 2014

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Putin: “When Crimea wound up in another state, Russians thought they’d not just been stolen, but robbed”

— max seddon (@maxseddon) March 18, 2014

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7:09 AM – Today

Standing Ovation For Putin

Thundrous applause in the Federal Assembly as Putin addresses Crimeapic.twitter.com/wjVe8CZbX5

— Joseph Weisenthal (@TheStalwart) March 18, 2014

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Russian President Vladimir Putin is addressing Russia’s parliament. Here is a live feed of it on Russia Today:

–Luke Johnson

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Ukrainian Prime Minister Arseniy Yatsenyuk gave a televised address Tuesday in Russian, seeking to assure speakers of the language.

“Association with NATO is not on the agenda,” he said. “Despite the armed aggression of Russia against Ukraine, I will do everything possible not only to keep the peace but also to build a genuine partnership with Russia and good neighbor relations.”

Many Ukrainians speak Russian, and it is predominant in the South and East of the country.

–Luke Johnson

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6:15 AM – Today

Crimea Currency To Change

Crimea’s deputy prime minister announced on Tuesday that the region plans to adopt the Russian ruble as its official currency, RTE reported.

The region, which declared itself independent from Ukraine yesterday, will drop the hyrvnia in April.

For more, click here.

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5:07 PM – 03/17/2014

PHOTO: Lenin Square In Simferopol

ukraine

A few people walk through a nearly empty Lenin Square in central Simferopol on March 17, 2014. Crimea declared independence today and applied to join Russia while the Kremlin braced for sanctions after the flashpoint peninsula voted to leave Ukraine in a ballot that has fanned the worst East-West tensions since the Cold War. (FILIPPO MONTEFORTE/AFP/Getty Images)

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Philipp Missfelder, foreign policy spokesperson for German Chancellor Angela Merkel’s government, told CNN’s Christiane Amanpour his country could function if Russia were to cut off its gas supplies to the European economic dynamo.

“If the Russians would stop the gas supply for us, or we would raise sanctions on the oil and gas sector, we will be able to have in the interconnected and linked European energy market – of course with higher prices – the energy supply for Germany,” Missfelder said.

Read the entire report here.

— Ryan Craggs

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Ukraine will sign a deal for closer political association with the European Union on Friday, according to a statement from E.U. foreign ministers.

The political provisions are part of an E.U. association agreement rejected by former President Viktor Yanukovych in November, sparking months of protests that preceded his downfall.

Reuters reports the economic and trade cooperation portion of the association agreement will be addressed after Ukraine’s presidential elections, scheduled for May 25.

Find the full statement here.

— Charlotte Alfred

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The Daily Beast reports Russian President Vladimir Putin plans to fire back at the United States with sanctions targeting U.S. officials. The Russian sanctions come in response to U.S. President Barack Obama’s announcement Monday the U.S. was imposing sanctions on high-level Russian officials and fugitive Ukrainian President Viktor Yanukovych. More from The Daily Beast:

Putin is expected to release his retaliation list as early as Tuesday and while the final list is still being crafted, it will include top Obama administration officials and high profile U.S. senators, in an effort to roughly mirror the U.S. sanctions against Russian officials and lawmakers, according to diplomatic sources. At the top of the list in Congress is Senate Majority Whip Dick Durbin, who recently co-authored a resolution criticizing Russia’s invasion of Crimea.

Read the full text here.

— Ryan Craggs

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4:14 PM – 03/17/2014

What Does Putin’s Declaration Mean?

According to The New Republic’s Julia Ioffe, Putin’s declaration of Crimea as an independent state doesn’t mean any one thing, for now.

The way Ioffe sees it, Crimea faces two options: A replay of the 2008 land dispute over Abkhazia between Russia and Georgia, or annexation by Russia. But, as Ioffe writes:

What we know now is that we know nothing now. Putin, as always, is moving slowly, but deliberately, carefully leaving his options open while testing the waters of international response. He may decide to keep Crimea as a vassal state stuck in the limbo of Abkhazia and South Ossetia, or he may move to make it another republic inside the Russian Federation.

Read the full article on The New Republic.

— Ryan Craggs

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Tati Cotliar for L’Officiel Ukraine http://t.co/aPlYKqPWmN

— Next Models (@NextModels) 9 months ago

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From Reuters:

The White House said on Monday the United States was reviewing Ukrainian requests for military aid but insisted that Washington for now was limiting its assistance to economic support as it seeks a diplomatic path with Russia.”We’re reviewing requests by the Ukrainian government and military,” White House spokesman Jay Carney told reporters. “Our focus is on steps that Russia can take to de-escalate.”

— Charlotte Alfred

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Reuters reports Ukraine has begun digging a defensive trench in the region of Donetsk, near the country’s border with Russia.

The trench includes concrete barriers, according to governor Sergei Taruta, and is intended to restore order in the aftermath of Russia’s takeover in Crimea. Like all regional leaders, Taruta was appointed by Ukraine’s central government.

“Our border is not a castle. But it is equipped so that vehicles cannot cross it in either direction,” Taruta said. “This is not based on one or another scenario, but rather intended to maintain a solid border.”

Read the full report here.

— Ryan Craggs

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2:44 PM – 03/17/2014

Putin Declares Crimea Independent

Russian President Vladimir Putin signed a decree making Crimea a “sovereign and independent” state Monday. It was not immediately clear whether the 37-word decree, which takes effect immediately, was a precursor to annexation or a shift in strategy to make Crimea an independent country.

–Luke Johnson

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BREAKING: Crimean Prime Minister says #Putin just signed order making #Crimea an independent state. http://t.co/l9WxgpyePk

— Julia Ioffe (@juliaioffe) 4 years ago

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crimean parliament
A couple hold a Russian flag outside the Crimean parliament building in central Simferopol on March 17, 2014. (DIMITAR DILKOFF/AFP/Getty Images)

Click here for more photos of celebrations in Crimea.

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Vadislav Surkov, a top adviser and spinmeister to Vladimir Putin known as a “grey cardinal” inside the Kremlin, brushed off U.S. sanctions with particular aplomb.

“I see the decision by the administration in Washington as an acknowledgment of my service to Russia. It’s a big honor for me. I don’t have accounts abroad,” he told the Moskovsky Komsomolets. “The only things that interest me in the U.S. are Tupac Shakur, Allen Ginsberg, and Jackson Pollock. I don’t need a visa to access their work. I lose nothing.”

–Luke Johnson

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White House spokesman Jay Carney did not rule out direct U.S. sanctions against Russia’s Putin during a press conference on Monday.

“The authority exists to apply sanctions to a variety of individuals and entities,” Carney told reporters, according to Reuters. “We’re not going to rule out individuals or rule out actions.”

Putin is currently not on the list of individuals targeted by U.S. sanctions, nor is Russia foreign minister Sergey Lavrov.

— Eline Gordts

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crimea
Cossack men install a Russian flag and a Crimean flag on the roof of the City Hall building on March 17, 2014 in Bakhchysarai, Ukraine. (Dan Kitwood/Getty Images)

Crimea May (Or May Not) Be Part Of Russia As Of This Moment | Zero Hedge

Crimea May (Or May Not) Be Part Of Russia As Of This Moment | Zero Hedge.

Moments ago, Reuters blasted the following headline:

DECREE MAKING CRIMEA PART OF RUSSIA HAS COME INTO FORCE FROM MOMENT OF ADOPTION; RUSSIAN ARMED FORCES ARE ONLY LEGITIMATE FORCES IN REGION -DEPUTY PRIME MINISTER OF CRIMEA

On the surface, this would mean that the Russian annexation of the Crimea if complete (and East Ukraine is coming). Especially when one considers that earlier Crimea also said it could adopt the Russian rouble as its currency and “nationalise” state property as part of plans to join the Russian Federation, a regional official was quoted as saying on Thursday.

The only problem as we reported earlier is that Kiev opened a criminal investigation against Crimean Prime Minister Sergei Askyonov, who was appointed by the region’s parliament last week. The Ukrainian government does not recognise his authority or that of the parliament. In other words, Kiev will not respect the Crimea’s popular choice, even if it is fully supported by Putin, which means that a showdown, one in which Russia proclaims it is defending the democracy of the Crimea against the Kiev government, is now almost inevitable.

Crimea May (Or May Not) Be Part Of Russia As Of This Moment | Zero Hedge

Crimea May (Or May Not) Be Part Of Russia As Of This Moment | Zero Hedge.

Moments ago, Reuters blasted the following headline:

DECREE MAKING CRIMEA PART OF RUSSIA HAS COME INTO FORCE FROM MOMENT OF ADOPTION; RUSSIAN ARMED FORCES ARE ONLY LEGITIMATE FORCES IN REGION -DEPUTY PRIME MINISTER OF CRIMEA

On the surface, this would mean that the Russian annexation of the Crimea if complete (and East Ukraine is coming). Especially when one considers that earlier Crimea also said it could adopt the Russian rouble as its currency and “nationalise” state property as part of plans to join the Russian Federation, a regional official was quoted as saying on Thursday.

The only problem as we reported earlier is that Kiev opened a criminal investigation against Crimean Prime Minister Sergei Askyonov, who was appointed by the region’s parliament last week. The Ukrainian government does not recognise his authority or that of the parliament. In other words, Kiev will not respect the Crimea’s popular choice, even if it is fully supported by Putin, which means that a showdown, one in which Russia proclaims it is defending the democracy of the Crimea against the Kiev government, is now almost inevitable.

Russian Fleet Gives Ukrainian Crimea Forces Ultimatum To Surrender Or “Face Storm”, Ukraine Defense Minister Quoted | Zero Hedge

Russian Fleet Gives Ukrainian Crimea Forces Ultimatum To Surrender Or “Face Storm”, Ukraine Defense Minister Quoted | Zero Hedge.

Just out from Reuters:

  • INTERFAX UKRAINIAN DEFENCE MINISTRY AS SAYING  RUSSIAN FLEET HAS GIVEN UKRAINIAN FORCES IN CRIMEA UNTIL 0300  GMT TOSURRENDER OR FACE STORM

It appears Putin is still unaware of the “costs” he is facing.

Meanwhile:

#Crimea The Russian deadline of 4 o’clock for Ukrainian troops to vacate Belbek base has passed. No sign of Russian military eviction force

— Elizabeth Palmer (@elizapalmer) March 3, 2014

Interpreter notes that Ukraine’s first president, Leonid Kravchuk, who served between 1991 and 1994, wrote in the Russian publication Snob.ru today that this crisis could spark World War III:

“I call on the Russian authorities to stop. Between our peoples should not be war. Does Russia not understand that this is the beginning of World War III?” he warned.

 

He vowed to defend the land of his forefathers despite his age.

 

“My great-grandfather and grandfather fought in World War I, along with Russia. I am 80 years old, but I’ll take a gun and I will defend their land. Every citizen will defend their territory as their home.

 

“We knelt and Russia sat us down. Czechoslovakia, Poland, Afghanistan, Hungary. Now Ukraine is on the line?” he continued.

If the Russian troops try to take these bases, and the soldiers inside resist, is it possible that Kravchuk’s warning could come true?

Russian Fleet Gives Ukrainian Crimea Forces Ultimatum To Surrender Or "Face Storm", Ukraine Defense Minister Quoted | Zero Hedge

Russian Fleet Gives Ukrainian Crimea Forces Ultimatum To Surrender Or “Face Storm”, Ukraine Defense Minister Quoted | Zero Hedge.

Just out from Reuters:

  • INTERFAX UKRAINIAN DEFENCE MINISTRY AS SAYING  RUSSIAN FLEET HAS GIVEN UKRAINIAN FORCES IN CRIMEA UNTIL 0300  GMT TOSURRENDER OR FACE STORM

It appears Putin is still unaware of the “costs” he is facing.

Meanwhile:

#Crimea The Russian deadline of 4 o’clock for Ukrainian troops to vacate Belbek base has passed. No sign of Russian military eviction force

— Elizabeth Palmer (@elizapalmer) March 3, 2014

Interpreter notes that Ukraine’s first president, Leonid Kravchuk, who served between 1991 and 1994, wrote in the Russian publication Snob.ru today that this crisis could spark World War III:

“I call on the Russian authorities to stop. Between our peoples should not be war. Does Russia not understand that this is the beginning of World War III?” he warned.

 

He vowed to defend the land of his forefathers despite his age.

 

“My great-grandfather and grandfather fought in World War I, along with Russia. I am 80 years old, but I’ll take a gun and I will defend their land. Every citizen will defend their territory as their home.

 

“We knelt and Russia sat us down. Czechoslovakia, Poland, Afghanistan, Hungary. Now Ukraine is on the line?” he continued.

If the Russian troops try to take these bases, and the soldiers inside resist, is it possible that Kravchuk’s warning could come true?

Ukraine Acting President Calls Emergncy Meeting Of Security Chiefs; Russia Threatens To Cut Off The Gas | Zero Hedge

Ukraine Acting President Calls Emergncy Meeting Of Security Chiefs; Russia Threatens To Cut Off The Gas | Zero Hedge.

All the dominoes are tumbling now. Moments after the Russian upper house of parliament approved the decision to use Russian troops in the Ukraine as expected, Ukraine’s acting president called an emergency meeting of security chiefs according to his spokeswoman. Oleksander Turchinov summoned his Security Council after Russian President Vladimir Putin sought parliamentary approval to deploy Russian forces in the Ukrainian region of Crimea. At this point the biggest and perhaps final wildcard is whether NATO does or does not get involved. If it does, and if Russia does not back off – which it has clearly telegraphed it won’t – futures may be looking at a limit down open on Sunday.

And while military escalation is now an official reality instead of merely YouTube clips of unidentified crap troops , Russia just sent another major warning shot across the bow when it issued several warnings on Saturday that Ukraine may lose a discount to the gas price it now pays to Gazprom due to Kiev’s outstanding gas debt. Russia’s state gas company Gazprom estimates Ukraine’s outstanding gas debt at $1.55 billion for 2013 and gas deliveries so far this year. This of course, was Russia’s trump card from the very beginning. Via Reuters:

“It seems that with such gas payments and fulfilment of its obligations Ukraine may not keep its current gas discount. The gas discount agreement assumed full and timely payment,” Gazprom spokesman Sergei Kupriyanov told Reuters.

A price increase would deepen Ukraine’s already dire cash situation and could lead to a new “gas war” between Kiev and Moscow as well as interrupt gas shipments to Europe, which gets around third of its gas from Russia.

In December, Russia agreed to reduce gas prices for Kiev by about a third, to $268.50 per 1,000 cubic metres from around $400 which Ukraine had paid since 2009, after ousted President Viktor Yanukovich spurned an EU trade deal in favour of closer ties to Moscow.

The deal allowed for the price to be revised quarterly between the 5th and 10th day of the first month every quarter.

The news agency Interfax cited a representative of the Russian energy ministry as saying on Saturday that Moscow sees no reason to extend the discount to Ukraine for the second quarter – because of the outstanding debt.

If this continues to happen, is there any point in continuing the existing agreement on gas supplies at discount prices? No,” the agency cited an unnamed ministry representative as saying.

“It is important that the proposal for a reduced gas price is confirmed quarterly. It would be stupid and wrong to extend it to the second quarter.”

Ukraine’s newly appointed Energy Minister Yuri Prodan told reporters on Saturday that the price for Russian gas would stay unchanged in March but it could jump to around $400 per 1,000 cubic metres in the second quarter if the two sides fail to sign an agreement.

Ukraine, which has seen its currency spiralling down and cash and gold reserves falling significantly as a result of the political protests that led to the ousting of President Viktor Yanukovich last weekend, is in dire need of cash.

It faces a further $6 billion in foreign debt payments this year and has asked the International Monetary Fund for financial assistance of at least $15 billion. Ukraine’s newly appointed leaders estimated Kiev’s needs at around $35 billion.

Prodan told journalists that the Ukrainian energy firm Naftogas is in “active talks” with Gazprom over pricing. Ukraine consumes about 55 billion cubic meters of gas each year, and more than half of this amount is imported from Russia.

But far more important than Ukraine, which is merely a sacrificial lamb in the latest proxy war between east and west, is the Russian hint that what is likely to happen to Ukraine’s gas may soon hit Europe too if it also gets involved.

Apart from through Ukraine, Russian gas flows to Europe via Belarus and two subsea pipelines – under the Black Sea and the Baltic Sea. Gazprom plans to build another subsea pipeline – the South Stream – to bypass Ukraine by 2016.

So check to you NATO: will you defend the territorial integrity of Ukraine even as NATO actively pushed for a split in Yugoslavia some 15 years ago, or will it do the “right” thing… in the dark?

Ukraine Acting President Calls Emergncy Meeting Of Security Chiefs; Russia Threatens To Cut Off The Gas | Zero Hedge

Ukraine Acting President Calls Emergncy Meeting Of Security Chiefs; Russia Threatens To Cut Off The Gas | Zero Hedge.

All the dominoes are tumbling now. Moments after the Russian upper house of parliament approved the decision to use Russian troops in the Ukraine as expected, Ukraine’s acting president called an emergency meeting of security chiefs according to his spokeswoman. Oleksander Turchinov summoned his Security Council after Russian President Vladimir Putin sought parliamentary approval to deploy Russian forces in the Ukrainian region of Crimea. At this point the biggest and perhaps final wildcard is whether NATO does or does not get involved. If it does, and if Russia does not back off – which it has clearly telegraphed it won’t – futures may be looking at a limit down open on Sunday.

And while military escalation is now an official reality instead of merely YouTube clips of unidentified crap troops , Russia just sent another major warning shot across the bow when it issued several warnings on Saturday that Ukraine may lose a discount to the gas price it now pays to Gazprom due to Kiev’s outstanding gas debt. Russia’s state gas company Gazprom estimates Ukraine’s outstanding gas debt at $1.55 billion for 2013 and gas deliveries so far this year. This of course, was Russia’s trump card from the very beginning. Via Reuters:

“It seems that with such gas payments and fulfilment of its obligations Ukraine may not keep its current gas discount. The gas discount agreement assumed full and timely payment,” Gazprom spokesman Sergei Kupriyanov told Reuters.

A price increase would deepen Ukraine’s already dire cash situation and could lead to a new “gas war” between Kiev and Moscow as well as interrupt gas shipments to Europe, which gets around third of its gas from Russia.

In December, Russia agreed to reduce gas prices for Kiev by about a third, to $268.50 per 1,000 cubic metres from around $400 which Ukraine had paid since 2009, after ousted President Viktor Yanukovich spurned an EU trade deal in favour of closer ties to Moscow.

The deal allowed for the price to be revised quarterly between the 5th and 10th day of the first month every quarter.

The news agency Interfax cited a representative of the Russian energy ministry as saying on Saturday that Moscow sees no reason to extend the discount to Ukraine for the second quarter – because of the outstanding debt.

If this continues to happen, is there any point in continuing the existing agreement on gas supplies at discount prices? No,” the agency cited an unnamed ministry representative as saying.

“It is important that the proposal for a reduced gas price is confirmed quarterly. It would be stupid and wrong to extend it to the second quarter.”

Ukraine’s newly appointed Energy Minister Yuri Prodan told reporters on Saturday that the price for Russian gas would stay unchanged in March but it could jump to around $400 per 1,000 cubic metres in the second quarter if the two sides fail to sign an agreement.

Ukraine, which has seen its currency spiralling down and cash and gold reserves falling significantly as a result of the political protests that led to the ousting of President Viktor Yanukovich last weekend, is in dire need of cash.

It faces a further $6 billion in foreign debt payments this year and has asked the International Monetary Fund for financial assistance of at least $15 billion. Ukraine’s newly appointed leaders estimated Kiev’s needs at around $35 billion.

Prodan told journalists that the Ukrainian energy firm Naftogas is in “active talks” with Gazprom over pricing. Ukraine consumes about 55 billion cubic meters of gas each year, and more than half of this amount is imported from Russia.

But far more important than Ukraine, which is merely a sacrificial lamb in the latest proxy war between east and west, is the Russian hint that what is likely to happen to Ukraine’s gas may soon hit Europe too if it also gets involved.

Apart from through Ukraine, Russian gas flows to Europe via Belarus and two subsea pipelines – under the Black Sea and the Baltic Sea. Gazprom plans to build another subsea pipeline – the South Stream – to bypass Ukraine by 2016.

So check to you NATO: will you defend the territorial integrity of Ukraine even as NATO actively pushed for a split in Yugoslavia some 15 years ago, or will it do the “right” thing… in the dark?

China’s Corporate Debt Hits Record $12 Trillion | Zero Hedge

China’s Corporate Debt Hits Record $12 Trillion | Zero Hedge.

Remember these two charts?

From November 2012, The Chinese Credit Bubble – Full Frontal:

 

 

And from November 2013, “How China’s Stunning $15 Trillion In New Liquidity Blew Bernanke’s QE Out Of The Water

 

 

It seems people are starting to listen, and not a moment too soon: as of December 31, China’s corporate debt just hit a record $12 trillionFrom Reuters:

China’s corporate debt has hit record levels and is likely to accelerate a wave of domestic restructuring and trigger more defaults, as credit repayment problems rise.

 

Chinese non-financial companies held total outstanding bank borrowing and bond debt of about $12 trillion at the end of last year – equal to over 120 percent of GDP – according to Standard & Poor’s estimates.

 

Growth in Chinese company debt has been unprecedented. A Thomson Reuters analysis of 945 listed medium and large non-financial firms showed total debt soared by more than 260 percent, from 1.82 trillion yuan ($298.4 billion) to 4.74 trillion yuan ($777.3 billion), between December 2008 and September 2013.

 

While a credit crisis isn’t expected anytime soon, analysts say companies in China’s most leveraged sectors, such as machinery, shipping, construction and steel, are selling assets and undertaking mergers to avoid defaulting on their borrowings.

 

More defaults are expected, said Christopher Lee, managing director for Greater China corporates at Standard and Poor’s Rating Services in Hong Kong. “Borrowing costs already are going up due to tightened liquidity,” he said. “There will be a greater differentiation and discrimination of risk and lending going forward.”

And then there was the worst capital misallocation in history:

Exacerbating China’s corporate troubles has been the questionable use of 4 trillion yuan in stimulus that Beijing pumped into the economy following the onset of the global financial crisis in 2008, explained Lee of Standard & Poor’s.

 

“Many companies invested heavily into competitive and low-return projects because funding was readily available,” he said. “These investments aren’t doing well and are making little contribution to profitability.”

Of course, there is also this:

And this:

What happens next as the Chinese perfect debt storm is finally unleashed? Read this for the upcoming next steps: ‘”The Pig In The Python Is About To Be Expelled”: A Walk Thru Of China’s Hard Landing, And The Upcoming Global Harder Reset 

Ukraine Calls Russia’s Bluff, Slashes Nat Gas Imports By 80% | Zero Hedge

Ukraine Calls Russia’s Bluff, Slashes Nat Gas Imports By 80% | Zero Hedge.

Twice in recent years, Russia has suspended gas supplies, or notably raised prices, as the somewhat well-known “trump card” of Russia’s oil and gas supply to Ukraine (and Europe for that matter) remains Putin’s easiest option for clenching his iron-first against the divided nation. Following a pre-emptive move in November by Ukraine to diversify its energy supply,  Russia had reduced the price of gas for the highly indebted Ukraine in December (to entice Ukraine under Russia’s wing); but, after recent events, Dmitry Medvedev signaled on Monday that the price could be raised again. However, today we find that Ukraine’s state oil and gas company, Naftogaz, has slashed gas imports from Russia’s Gazprom by  stunning 80% in February as Ukraine tries to show Russia it can’t be pushed around… of course, with limited (and more expensive) alternative supplies, we fear this could well shoot them in the foot.

This action is similar to that taken in November (before the EU accession discussion)…

 Russia and Ukraine waged two gas wars over prices in the winters of 2006 and 2009 (which lasted 3 weeks) over a claim Ukraine was late in paying.

Ukrainian Prime Minister Mykola Azarov said that if Gazprom refuses to revise its contract, Ukraine would stop importing gas from RussiaIn a step away from energy dependence on Russia, last week Ukraine signed a $10 billion shale gas deal with Chevron.

Ukraine is speeding up its effort to diversify its supply, and has looked at different exporters, fracking, new offshore projects in the Black Sea, as well as new LNG terminals and pipelines to diversify supply. Ukraine imports more than half of its gas from Russia, but under Viktor Yanukovich’s leadership, has intentionally scaled down Gazprom imports 40 percent over ‘unfair prices’.

And now today,

Ukraine’s state oil and gas company, Naftogaz, has slashed gas imports from Russia’s Gazprom to 28 million cubic meters per day as of February 24 from 147 million, two Russian industry sources told Reuters on Tuesday.

They said Naftogaz had gradually reduced its imports from 147 million cubic meters as of February 1, but did not offer a reason for the cuts.

Prime Minister Dmitry Medvedev hinted on Monday that gas prices, reduced as part of a Russian bailout in December, may revert to higher levels.

Ukraine consumes about 55 billion cubic meters of gas each year, and more than half is imported from Russia. Gazprom exported 161.5 billion cubic meters of gas to Europe last year.

Gazprom official declined to comment on Naftogaz import volumes but said Russian gas transit to Europe was unaffected.

So simply put, they want to show Russia they can’t be pushed around… the trouble is, of course, that with alternative supply routes in short-supply (and only more expensive alternatives available)…

…they may well be shooting themselves in the foot. That and the whole being out of money thing too won’t help.  Finally, as everyone knows by now, Russia does have the “trump card” no matter how hard to get the Ukraine plays:

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