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China On The Verge Of First Corporate Bond Default Once More | Zero Hedge

March 5, 2014 7:14 am / Leave a comment

China On The Verge Of First Corporate Bond Default Once More | Zero Hedge.

While everyone was focusing on the threat of tumbling debt dominoes in China’s shadow banking sector, a new threat has re-emerged: regular, plain vanilla corporate bankruptcies, in the country with the $12 trillion corporate bond market (these are official numbers – the unofficial, and accurate, one is certainly far higher). And while anywhere else in the world this would be a non-event, in China, where corporate – as well as shadow banking – bankruptcies are taboo, a default would immediately reprice the entire bond market lower and have adverse follow through consequences to all other financial products. This explains is why in the past two months, China was forced to bail out not one but two Trusts with exposure to the coal industry as we reported previously in great detail. However, the Chinese Default Protection Team will have its hands full as soon as Friday, March 7, which is when the interest on a bond issued by Shanghai Chaori Solar Energy Science & Technology a Chinese maker of solar cells, falls due. That payment, as of this moment, will not be made, following an announcement made late on Tuesday that it will not be able to repay the CNY89.8 million interest on a CNY1 billion bond issued on March 7th 2012.

FT reports:

The company has until March 7th to repay the interest, charged at an annual 8.98 per cent, the company said in a statement. “Due to various uncontrollable factors, until now the company has only raised Rmb 4m to pay the interest,” it said in the statement.

Trading in the Chaori bond, given a CCC junk rating, was suspended last July because the company suffered two consecutive years of losses. The company had a further RMB1.37bn loss in 2013, according to the results it posted on the exchange.

Just pointing out the obvious here, but how bad must things be for the company to be on the verge of default not due to principal repayment but because two years after issuing a bond, it only has 4% in cash on hand for the intended coupon payment?

Furthermore, as noted previously, China has so far been able to kick the can on its defaults for nearly three decades. Which is why suddenly everyone is focusing on this tiny company: Chaori Solar’s default – if it transpires – would mark the first time a company has defaulted on publicly traded debt in China since the central bank began regulating the market in the late 1990s. Bloomberg adds, citing Liu Dongliang, Shenzhen-based senior analyst at China Merchants Bank, that such a default would be the “first of a string of further defaults in China.”  FT continues:

Though the bond is relatively small, a default could deliver a sharp shock to risk management strategies in China vast corporate debt market, estimated by Standard&Poor’s to be $12tn in size at the end of 2013.

Any default could also slow down new issuance. A Thomson Reuters analysis of 945 listed medium and large non-financial firms showed total debt soared by more than 260 per cent, from Rmb1.82tn to Rmb4.74tn, between December 2008 and September 2013.

In January, a Chinese fund company avoided a high-profile default, reaching a last-minute agreement to repay investors in a soured $500m high-yield investment trust, in a case that had sent tremors through global markets.

Then again, those who follow China’s bond market will know that Chaori’s failure to pay interest would not really be the true first Chinese corporate default: recall as we reported almost exactly a year ago:

For the first time, a mainland Chinese company has defaulted on its bonds. SunTech Power Holdings has been clinging on by its teeth but after failing to repay $541mm of notes due on March 15th – and following four consecutive quarters of losses through the first quarter of 2012 and since then having failed to report quarterly earnings – owed to Chinese domestic lenders, the firm is restructuring. As Bloomberg reports, Chinese solar companies are struggling after taking on debt to expand supply, leading to a glut that forced down prices and squeezed profits – and most notably were unable to renegotiate its liabilities and obtain “additional flexibility” from creditors. This is highly unusual and perhaps is the beginning of a trend for Chinese firms.

So yes: a prior default, and one by a solar company no less. However, going back down memory lane again, ultimately Suntech had the same fate as all other insolvent corporations in China do – it got a post-facto bailout:

Struggling Chinese solar panel maker Suntech Power Holdings Co Ltd is set for a $150 million local government bailout, a step towards tackling its $2.3 billion debt pile that is at odds with Beijing’s effort to wean the sector off state support. The lifeline comes from the municipal government of Wuxi, an eastern city where Suntech’s Chinese subsidiary is headquartered, and follows Shunfeng Photovoltaic International Ltd’s signing of a preliminary deal to buy its bankrupt Chinese unit.

Curious why China’s local government continues to balloon at an exponential pace, and has doubled in roughly two years to roughly CNY20 trillion (that’s the real number – the official, made up one is CNY17.9 trillion or $3 trillion)? Because just like the Fed and ECB are the ultimate toxic bad banks in the US and Eurozone, respectively, in China all the bad debt ultimately disappears under the comfortable carpet of the broad “local government debt” umbrella. However, things like these must never be discussed in polite public conversation. Which is why despite what Guan Qingyou, an economist with Minsheng Securities said in his Weibo account that the “first default might not be a bad thing even that means more defaults might happen, because it is ultimately good for the market reform”, the reality is that once the dam breaks, it may well be game over for a country that only knows one thing – how to kick the can ever further.

There are additional considerations: As the FT also notes, “given the squeeze on credit supply already seen in January this year, corporate debt defaults could further slow momentum in China’s fixed asset investments.” In other words, the just announced 7.5% GDP target revealed ahead of the National People’s Congress will be impossible to achieve, should China be unable to fund the Capex to build its burgeoning ghost cities, should rates spike.

Which is why this too default will ultimately be made to disappear.

And the next one, and the one after that, because “now” is never the right time to make the right, but difficult decision.

But how much longer can China avoid reality? Not much if one consider this just crossed headline on Bloomberg:

  • CHINA TO SHUT 50,000 COAL FURNACES THIS YEAR, LI SAYS

Recall coal is the industry that China’s near-bankrupt Trusts have most of their exposure to.

And then there are our four favorite charts confirming the dire situation in China’s credit market:

 

 

 

 

 

For those who need a refresh course on why the Chinese situation is rapidly going from bad to worse, read these several most recent comprehensive articles on the topic:

Bank of America warns further that a more confident government means the start of defaults…

With amazing speed in consolidating power in 2013, a more confident President Xi Jinping and team are expected to push for a wide range of reforms. 2014 will be the year for China seriously cleans up mounting local government and corporate debts which have been rapidly accumulated since late 2008. We believe the chance of some bond and trust loan defaults will rise significantly in 2014, especially as the more confident government sees the need for some defaults to develop a more disciplined financial market
 

China On The Verge Of First Corporate Bond Default Once More | Zero Hedge

March 5, 2014 7:14 am / Leave a comment

China On The Verge Of First Corporate Bond Default Once More | Zero Hedge.

While everyone was focusing on the threat of tumbling debt dominoes in China’s shadow banking sector, a new threat has re-emerged: regular, plain vanilla corporate bankruptcies, in the country with the $12 trillion corporate bond market (these are official numbers – the unofficial, and accurate, one is certainly far higher). And while anywhere else in the world this would be a non-event, in China, where corporate – as well as shadow banking – bankruptcies are taboo, a default would immediately reprice the entire bond market lower and have adverse follow through consequences to all other financial products. This explains is why in the past two months, China was forced to bail out not one but two Trusts with exposure to the coal industry as we reported previously in great detail. However, the Chinese Default Protection Team will have its hands full as soon as Friday, March 7, which is when the interest on a bond issued by Shanghai Chaori Solar Energy Science & Technology a Chinese maker of solar cells, falls due. That payment, as of this moment, will not be made, following an announcement made late on Tuesday that it will not be able to repay the CNY89.8 million interest on a CNY1 billion bond issued on March 7th 2012.

FT reports:

The company has until March 7th to repay the interest, charged at an annual 8.98 per cent, the company said in a statement. “Due to various uncontrollable factors, until now the company has only raised Rmb 4m to pay the interest,” it said in the statement.

Trading in the Chaori bond, given a CCC junk rating, was suspended last July because the company suffered two consecutive years of losses. The company had a further RMB1.37bn loss in 2013, according to the results it posted on the exchange.

Just pointing out the obvious here, but how bad must things be for the company to be on the verge of default not due to principal repayment but because two years after issuing a bond, it only has 4% in cash on hand for the intended coupon payment?

Furthermore, as noted previously, China has so far been able to kick the can on its defaults for nearly three decades. Which is why suddenly everyone is focusing on this tiny company: Chaori Solar’s default – if it transpires – would mark the first time a company has defaulted on publicly traded debt in China since the central bank began regulating the market in the late 1990s. Bloomberg adds, citing Liu Dongliang, Shenzhen-based senior analyst at China Merchants Bank, that such a default would be the “first of a string of further defaults in China.”  FT continues:

Though the bond is relatively small, a default could deliver a sharp shock to risk management strategies in China vast corporate debt market, estimated by Standard&Poor’s to be $12tn in size at the end of 2013.

Any default could also slow down new issuance. A Thomson Reuters analysis of 945 listed medium and large non-financial firms showed total debt soared by more than 260 per cent, from Rmb1.82tn to Rmb4.74tn, between December 2008 and September 2013.

In January, a Chinese fund company avoided a high-profile default, reaching a last-minute agreement to repay investors in a soured $500m high-yield investment trust, in a case that had sent tremors through global markets.

Then again, those who follow China’s bond market will know that Chaori’s failure to pay interest would not really be the true first Chinese corporate default: recall as we reported almost exactly a year ago:

For the first time, a mainland Chinese company has defaulted on its bonds. SunTech Power Holdings has been clinging on by its teeth but after failing to repay $541mm of notes due on March 15th – and following four consecutive quarters of losses through the first quarter of 2012 and since then having failed to report quarterly earnings – owed to Chinese domestic lenders, the firm is restructuring. As Bloomberg reports, Chinese solar companies are struggling after taking on debt to expand supply, leading to a glut that forced down prices and squeezed profits – and most notably were unable to renegotiate its liabilities and obtain “additional flexibility” from creditors. This is highly unusual and perhaps is the beginning of a trend for Chinese firms.

So yes: a prior default, and one by a solar company no less. However, going back down memory lane again, ultimately Suntech had the same fate as all other insolvent corporations in China do – it got a post-facto bailout:

Struggling Chinese solar panel maker Suntech Power Holdings Co Ltd is set for a $150 million local government bailout, a step towards tackling its $2.3 billion debt pile that is at odds with Beijing’s effort to wean the sector off state support. The lifeline comes from the municipal government of Wuxi, an eastern city where Suntech’s Chinese subsidiary is headquartered, and follows Shunfeng Photovoltaic International Ltd’s signing of a preliminary deal to buy its bankrupt Chinese unit.

Curious why China’s local government continues to balloon at an exponential pace, and has doubled in roughly two years to roughly CNY20 trillion (that’s the real number – the official, made up one is CNY17.9 trillion or $3 trillion)? Because just like the Fed and ECB are the ultimate toxic bad banks in the US and Eurozone, respectively, in China all the bad debt ultimately disappears under the comfortable carpet of the broad “local government debt” umbrella. However, things like these must never be discussed in polite public conversation. Which is why despite what Guan Qingyou, an economist with Minsheng Securities said in his Weibo account that the “first default might not be a bad thing even that means more defaults might happen, because it is ultimately good for the market reform”, the reality is that once the dam breaks, it may well be game over for a country that only knows one thing – how to kick the can ever further.

There are additional considerations: As the FT also notes, “given the squeeze on credit supply already seen in January this year, corporate debt defaults could further slow momentum in China’s fixed asset investments.” In other words, the just announced 7.5% GDP target revealed ahead of the National People’s Congress will be impossible to achieve, should China be unable to fund the Capex to build its burgeoning ghost cities, should rates spike.

Which is why this too default will ultimately be made to disappear.

And the next one, and the one after that, because “now” is never the right time to make the right, but difficult decision.

But how much longer can China avoid reality? Not much if one consider this just crossed headline on Bloomberg:

  • CHINA TO SHUT 50,000 COAL FURNACES THIS YEAR, LI SAYS

Recall coal is the industry that China’s near-bankrupt Trusts have most of their exposure to.

And then there are our four favorite charts confirming the dire situation in China’s credit market:

 

 

 

 

 

For those who need a refresh course on why the Chinese situation is rapidly going from bad to worse, read these several most recent comprehensive articles on the topic:

Bank of America warns further that a more confident government means the start of defaults…

With amazing speed in consolidating power in 2013, a more confident President Xi Jinping and team are expected to push for a wide range of reforms. 2014 will be the year for China seriously cleans up mounting local government and corporate debts which have been rapidly accumulated since late 2008. We believe the chance of some bond and trust loan defaults will rise significantly in 2014, especially as the more confident government sees the need for some defaults to develop a more disciplined financial market
 

Junk Yield Premiums Soar on China’s Looming First Default – Bloomberg

February 10, 2014 1:58 pm / Leave a comment

Junk Yield Premiums Soar on China’s Looming First Default – Bloomberg.

By Bloomberg News  Feb 9, 2014 9:42 PM ET

The extra cost to borrow for China’s riskiest companies is at the highest in 20 months as soaring interest rates heighten concern the nation will experience its first onshore bond default.

The yield gap on five-year AA- notes over AAA debt jumped 27 basis points last month to 224, the most since June 2012, Chinabond indexes show. Ratings of AA- or below are equivalent to non-investment grades globally, according to Haitong Securities Co., the nation’s second-biggest brokerage. The similar spread in the U.S. is 403 basis points, Bank of America Merrill Lynch data show.

The failure of coal companies to meet payment deadlines for trust products has increased concern over debt defaults, with the equivalent of $53 billion of bonds sold by renewable energy, construction materials, metals and mining companies due in 2014. A report on Jan. 30 signaled China’s factories are contracting for the first time since August amid signs of financial stress including mounting losses and bailouts.

“China’s bond market will definitely see its first default this year,” said Xu Hanfei, a bond analyst inShanghai at Guotai Junan Securities Co., the nation’s third-biggest brokerage. “The economy is slowing while the government seems still confident about growth, which means the authorities probably won’t announce any measures to avert the slowdown. This is the worst scenario.”

Financial Panic

A further $21 billion of securities in those three sectors mature in 2015, the Bloomberg data show, with companies including Baoshan Iron & Steel Co., China Minmetals Corp. and Wuhan Iron & Steel Co. among the most indebted. Bonds of steel and coal companies are under added pressure considering the government’s campaign to reduce smog, and industry overcapacity, according to Moody’s Investors Service, which has a negative outlook on both.

LDK Solar Co. is looking at ways to restructure obligations on its offshore yuan debt after missing payments on its dollar debt last year. Zhuhai Zhongfu Enterprise Co. (000659), a manufacturer of beverage packaging, said on Jan. 28 its 2015 debentures may be suspended from trade after its estimated net loss was as much as 450 million yuan ($74.2 million) in 2013. The yield on the 5.28 percent notes has climbed 217.5 basis points this year to 18.76 percent, exchange data show.

Steel, Shipping

The world’s second-biggest economy slowed in the fourth quarter to 7.7 percent from 7.8 percent in the previous three months as Premier Li Keqiang drove up money-market rates to encourage companies and local governments to deleverage.

China’s central bank signaled in a Feb. 8 report that volatility in money-market interest rates will persist and borrowing costs will rise, further underscoring the risk of defaults which could weigh on confidence and drag down growth.

China Credit Trust Co. reached an agreement last month to repay bailed-out investors in a high-yield product whose threatened failure spurred concern bad debts will rise in the nation’s $1.7 trillion trust industry.

The gap between top-rated and lower-rated bonds in China may widen further this year as news about possible defaults shakes the market, according to Cheng Qingsheng, an analyst at Evergrowing Bank Co.

“There should be a default in China’s onshore bonds this year,” Shanghai-based Cheng said. “Privately issued bonds have higher default risks than publicly traded bonds.” A first default may happen in the steel, coal, shipping or photovoltaic power industries, Cheng said.

Default Swaps

As default concerns escalate, the cost of insuring the nation’s debt against non-payment is rising. China’s credit-default swaps have increased 13 basis points this year to 93 as of Feb. 7. The yuanfell to 6.0646 per dollar on Feb. 7, the lowest level this year. It was little changed at 6.0605 as of 10:32 a.m. in Shanghai.

There have been no defaults in China’s publicly traded domestic debt market since the central bank started regulating it in 1997, according to Moody’s.

Local governments have helped some companies avert missing payment deadlines, according to Yao Wei, the Hong Kong-based China economist at Societe Generale SA. CHTC Helon Co., a fiber maker which used to be called Shandong Helon Co., repaid 400 million yuan of notes in April 2012 even as it failed to make loan repayments.

Shanghai Chaori Solar Energy Science & Technology Co. (002506), which averted default on an interest payment last year and had just 618.7 million yuan cash as of September, will pay 898 million yuan of debt in March, according to Guotai Junan. The solar-panel maker’s debt-to-asset ratio was 90.1 percent at the end of the third quarter, according to a company financial report released Oct. 27.

High Cost

Other companies are receiving help from related entities. Changzhou Wintafone Chemical Co., a maker of herbicides and insecticides based in the eastern province of Jiangsu, said last month it’s stopped production and can’t repay notes due in March. Changzhou Qinghong Chemical Co., the note’s guarantor, repaid 36.9 million yuan on its behalf on Jan. 17.

A first default may be avoided if local governments continue to step in, said Beijing-based Yang Feng, a bond analyst at Citic Securities Co., the nation’s biggest brokerage.

“The cost of a default on a bond would be very high,” said Yang. “If a company in Shanghai defaults, it would be difficult for every company in the city to raise money.”

Turning Cautious

The yield on AA- rated five-year corporate bonds climbed 13 basis points last month to 8.38 percent. The rate on the benchmark five-year government bond dropped 24 basis points to 4.22 percent over the same period.

The average yield on high-yield Dim Sum bonds, or yuan-denominated notes sold in Hong Kong, has climbed 14 basis points this month to 5.66 percent on Feb. 6, the highest since October, according to an index compiled by HSBC Holdings Plc. Yields averaged 5.52 percent on Dec. 31.

U.S. dollar-denominated 13.25 percent notes sold by Glorious Property Holdings Ltd. (845) in February last year and due in 2018 were yielding 19.61 percent on Feb. 7, Bloomberg-compiled prices show. The company’s chief executive officer and chief financial officer resigned last week, less than one month after shareholders rejected an offer by Chinese billionaire Zhang Zhirong to take the developer private.

“Investors have turned cautious on high-yield bonds,” said Guotai Junan’s Xu, who forecasts China’s economy will grow 7 percent this year. “Since China’s onshore bond market hasn’t had a default, the market may not have priced in all the risk it should have.”

Sinovel, Nanjing

Sinovel Wind Group Co. (601558), said on Jan. 29 its bonds due 2016 may be suspended from trade because it may report a second year of losses. The yield on the 6.2 percent notes has jumped 329 basis points in 2014 to 15.01 percent as of today. Similarly, Nanjing Iron & Steel Co. (600282), partly owned by Chinese billionaire Guo Guangchang, said last month its 2018 bonds may stop trading because it too could report a second year of losses. The yield on those notes has soared 208 basis points this year to 10.72 percent, exchange data show.

“It would be best if the government will allow defaults,” Zhang Ming, a senior research fellow at the government-backed Chinese Academy of Social Sciences in Beijing, said in a Jan. 22 interview. “The bubbles are gradually inflating, and sooner and later there will be a collapse. The best scenario is that you allow defaults in some places when you are ready so that some risks can be released. The later the default, the more damaging.”

To contact Bloomberg News staff for this story: Judy Chen in Shanghai atxchen45@bloomberg.net

To contact the editors responsible for this story: Katrina Nicholas at knicholas2@bloomberg.net; Sandy Hendry at shendry@bloomberg.net

China’s economic growth continues to slow – Asia-Pacific – Al Jazeera English

January 20, 2014 5:38 pm / Leave a comment

China’s economic growth continues to slow – Asia-Pacific – Al Jazeera English.
China’s economy registered a flat growth of 7.7 percent last year, maintaining for the second year its slowest expansion in more than a decade as the government warned of “deep-rooted problems” including a mountain of local authority debt.

Gross domestic product (GDP) expansion for the October-December quarter also came in at 7.7 percent, the National Bureau of Statistics (NBS) said, slowing from 7.8 percent in the previous three months.

The 2013 GDP figure was the same as that for 2012, which was the worst rate of growth since 1999. It was still higher than the government’s growth target for the year, which was 7.5 percent.

“Generally speaking China’s economy showed good momentum of stable and moderate growth in 2013, which is (a) hard-earned achievement,” NBS chief Ma Jiantang told reporters.

“However, we should keep in mind that the deep-rooted problems built up over time are yet to be solved in what is a critical period for China’s economy,” Ma said.

Since the 1980s, China has shaken off the lethargy of the Communist command economy with market reforms that brought it years of blistering growth, making its GDP second only to the US and establishing it as the world’s biggest trading power in goods.

But the country is widely expected to face slower expansion in the years ahead.

Its leaders under President Xi Jinping say they are committed to transforming China’s growth model to one where consumers and other private actors play the leading role, rather than huge and often wasteful state investment.

“Judging from the data, our outlook for 2014 remains that China’s economy will continue slowing down in the first half,” Wendy Chen, Shanghai-based analyst for Nomura International, told AFP.

Within the past decade Chinese growth was regularly in double digits, but it has been on a slowing trend and the 2013 result shows GDP growth in single figures for three consecutive years for the first time since 2002.

Worries ahead

Ma of the NBS said China faces problems including dealing with burgeoning local government debt.

“The foundation of economic growth remains to be consolidated, the internal driving forces of economic expansion need to be further fostered, the risk of local government debt should be prevented and greater efforts are to be made to weed out out-dated production capacity,” he said.

Besides shifting the growth emphasis, China’s leaders are also concerned about the country’s financial system including “shadow banking” and government debt, particularly at the regional level.

China late last month announced the results of a long-awaited debt audit, revealing that liabilities carried by local governments had ballooned to $2.95 trillion as of the end of June, up 67 percent from the end of 2010.

Local authorities have long used debt to fuel growth in their regions, often by pursuing projects that are not economically viable or sustainable.

While few see the problem as a systemic threat, the debt issue is considered to be a serious potential drag on China’s economy unless steps are taken to rein it in.

Analysts also say that shadow banking — non-transparent, less regulated credit — can stoke asset bubbles and threaten stability.

China Bails Out Money Markets For Second Day In A Row, Following Repo Rate Blow Out | Zero Hedge

December 20, 2013 9:55 am / Leave a comment

China Bails Out Money Markets For Second Day In A Row, Following Repo Rate Blow Out | Zero Hedge.

As reported yesterday, following a surge in various short-term and money market rates in the aftermath of the Fed’s taper announcement, the PBOC admitted after the close that it used Short-term Liquidity Obligations (SLO) to add funding to the market, and in doing so, bailing out money markets – the same product that nearly collapsed the financial system in the aftermath of Lehman.

The bank didn’t specify when it added the funds but, in another direct echo of the June panic, the PBOC said it is prepared to add more. However, it seems the market was less the convinced, and despite an early plunge in the seven day repo rate by over 2%, it suddenly and rapidly reversed direction and instead blew out hitting a whopping 9%, the highest since the June near-crash of the Chinese banking sector.

The outcome: China said it injected another $50 billion to bailout and stabilize its money markets in what is increasingly looking like a replay of this summer’s liquidity lock up. Perhaps the PBOC hinting at tapering at a time when the Fed is actually doing so is not the smart choice…

From the WSJ:

China’s central bank said it had injected over 300 billion yuan ($49.2 billion) into the nation’s money markets over a three-day period as interbank interest rates surged to their highest levels since June.

The People’s Bank of China said on its official Twitter-like weibo account that the banking system had current excess reserves of over CNY1.5 trillion and it called that level “relatively high.”

The central bank said that it had injected the funds through its “short-term liquidity operations” and this was in response to the year-end market factors.

The interest rates banks charge each other for short-term loans jumped to 8.2%, the highest level since the June cash squeeze. 

The stress in the banking system is starting to spread elsewhere, with stocks in Shanghai falling for a ninth straight day to the weakest level in four months while government bonds dropped, pushing the 10-yield up to near the highest in eight years.

The turmoil has been sparked by a scramble for funds by banks as they near the end of the year when they typically need extra cash to meet regulatory requirements as well as the demand for funds from companies.

The central bank also said reminded banks that they need to manage liquidity better.

As to what drove the rapid mood reversal, the Chinese market was hit early on with talk of a missed payment at a local Chinese bank. For now it has not been confirmed, and even if it was the PBOC is expected to never allow any government-backstopped bank to fail. Still, a few more days like the last two and the world may just find out how prepared for a bank failure a credit-stretched China really is.

 

China “Fixes” Pollution Problem… By Raising Danger Threshold | Zero Hedge

December 11, 2013 10:41 am / Leave a comment

China “Fixes” Pollution Problem… By Raising Danger Threshold | Zero Hedge.

If you don’t like the frequency of your air-quality alerts, you don’t have to keep them. That is the message that the Chinese government has made loud and clear as Bloomberg reports, Shanghai’s environmental authority took decisive action to address the pollution – it cynically adjusted the threshold for “alerts” to ensure there won’t be so many. In a move remininscent of Japan’s raising of the “safe” radioactive threshold level, China has apparently decided – rather than accept responsibility for the disaster – to avoid it by making the “safe” pollution level over 50% more polluted (up from 75 to 115 micrograms per cubic meter) – almost 5 times the WHO’s “safe” level of 25 micrograms.

Via Bloomberg,

As the smog that has choked Shanghai for much of the last week reached hazardous levels, the city’s environmental authority took decisive action to address the frequent air-quality alerts: It adjusted standards downward to ensure that there won’t be so many.

It was a cynical move, surely made to protect the bureau’s image in the face of unrelenting pollution that only seems to grow worse, despite government promises to address it.At this advanced stage in China’s development, nobody in the country (or elsewhere) — not even the loyal state news media — seems to believe that the problem is solvable, at least not any time soon. Even worse, nobody — not the state and certainly not the growing number of middle-class consumers (and car buyers) — seems ready to take responsibility for the mess.

…

If you can’t fix it, you might as well try to avoid responsibility for it, the thinking seems to go. It therefore comes as no surprise that Shanghai’s Environmental Protection Bureau decided to lower the benchmark for alerting the public about pollution risks. It will now issue alerts only when the concentration of the most dangerous particulates in the city’s air, known asPM2.5 (particulates smaller than 2.5 micometers in diameter) reach 115 micrograms per cubic meter. The previous standard was 75 micrograms per cubic meter. (The World Health Organization recommends not exceeding 25 micrograms per cubic meter in a 24-hour period.)

…

The state-owned English-language China Daily explained the decision in tone that almost obscured the absurdity of the maneuver: “The bureau said it believes the original standard is too strict, given that haze is common in the Yangtze River Delta region in winter.”

…

“On social networks like Weibo and Wechat, Beijingers now show photos of blue skies and white clouds as if they’re on vacation.” This show-off behavior left a bad taste, he concedes, before concluding with a final sentence that ought to serve as a rallying cry in China: “I really hope that someday people will resume reacting to blue skies and white clouds in a ‘normal’ manner.”

That’s a hope that probably won’t be fulfilled in this decade or even the next.

 

Shanghai smog cancels flights, reduces visibility to metres – World – CBC News

December 6, 2013 7:02 am / Leave a comment

Shanghai smog cancels flights, reduces visibility to metres – World – CBC News.

Shanghai smogShanghai’s concentration of tiny, harmful PM 2.5 particles reached 602.5 micrograms per cubic metre Friday afternoon, compared with the World Health Organization’s safety guideline of 25 micrograms. (China Daily/Reuters)

Shanghai authorities ordered schoolchildren indoors and halted all construction Friday as China’s financial hub suffered one its worst bouts of air pollution, bringing visibility down to a few dozen metres, delaying flights and obscuring the city’s spectacular skyline.

The financial district was shrouded in a yellow haze, and noticeably fewer people walked the city’s streets. Vehicle traffic also was thinner, as authorities pulled 30 per cent of government vehicles from the roads. They also banned fireworks and public sporting events.

“I feel like I’m living in clouds of smog,” said Zheng Qiaoyun, a local resident who kept her six-month-old son at home. “I have a headache, I’m coughing, and it’s hard to breathe on my way to my office.”

‘Today, Shanghai air really has a layered taste. At first, it tastes slightly astringent with some smokiness. Upon full contact with your palate, the aftertaste has some earthy bitterness…’– Alan Yu, chef

Shanghai’s concentration of tiny, harmful PM 2.5 particles reached 602.5 micrograms per cubic metre Friday afternoon, an extremely hazardous level that was the highest since the city began recording such data last December. That compares with the World Health Organization’s safety guideline of 25 micrograms.

The dirty air that has gripped Shanghai and its neighbouring provinces for days is attributed to coal burning, car exhaust, factory pollution and weather patterns, and is a stark reminder that pollution is a serious challenge in China. Beijing, the capital, has seen extremely heavy smog several times over the past year. In the far northeastern city of Harbin, some monitoring sites reported PM 2.5 rates up to 1,000 micrograms per cubic meter in October, when the winter heating season kicked off.

Pollution levels unusual for Shanghai

As a coastal city, Shanghai usually has mild to modest air pollution, but recent weather patterns have left the city’s air stagnant. On China’s social media, netizens swapped jokes over the rivalry between Shanghai and Beijing, saying the financial hub was catching up with the capital in air pollution.

Alan Yu, a chef in Shanghai, satirized the air on his microblog as though he were sampling a new vintage of wine.

“Today, Shanghai air really has a layered taste. At first, it tastes slightly astringent with some smokiness. Upon full contact with your palate, the aftertaste has some earthy bitterness, and upon careful distinguishing you can even feel some dust-like particulate matter,” Yu wrote.

The environmental group Greenpeace said slow-moving and low-hanging air masses had carried factory emissions from Jiangsu, Anhui and Shandong provinces to Shanghai. But it said the root problem lies with the excessive industrial emissions in the region, including Zhejiang province to the south.

“Both Jiangsu and Zhejiang should act as soon as possible to set goals to reduce their coal consumption so that the Yantze River Delta will again be green with fresh air,” Huang Wei, a Greenpeace project manager, said in a statement.

 

China Fires Shot Across Petrodollar Bow: Shanghai Futures Exchange May Price Crude Oil Futures In Yuan | Zero Hedge

November 21, 2013 8:01 pm / Leave a comment

China Fires Shot Across Petrodollar Bow: Shanghai Futures Exchange May Price Crude Oil Futures In Yuan | Zero Hedge.

With the US shale revolution set to make America the largest exporter of crude, however briefly, the influence of Saudi oil is rapidly declining. This has been felt most recently in the cold shoulder the US gave Saudi Arabia and Qatar first over the Syrian debacle, and subsequently in its overtures to break the ice with Iran over the stern objections of Israel and the Saudi lobby (for a good example of this the most recent soundbites by Prince bin Talal ). But despite the shifting commodity winds and the superficial political jawboning, the reality is that nothing threatens the US dollar’s hegemony in what many claim is the biggest pillar of the currency’s reserve status – the petrodollar, which literally makes the USD the only currency in which energy-strapped countries can transact in to purchase energy. This may be changing soon following news that the Shanghai Futures Exchange could price its crude oil futures contract in yuan, its chairman said on Thursday, adding that the bourse is speeding up preparatory work to secure regulatory approvals.

 In doing so China is effectively lobbing the first shot across the bow of the Petrodollar system, and more importantly, the key support of the USD in the international arena.

This would be in keeping with China’s strategy to import about 100 tons of gross gold each and every month, in addition to however much gold it produces internally, in what many have also seen as a preparation for a gold-backed currency, which however would require a far broader acceptance of the renminbi in the international arena and most importantly, its intermediation in a crude pricing loop. It is precisely the latter that China is starting to focus on.

Reuters reports:

China, which overtook the United States as the world’s top oil importer in September, hopes the contract will become a benchmark in Asia and has said it would allow foreign investors to trade in the contract without setting up a local subsidiary.

 

“China is the only country in the world that is a major crude producer, consumer and a big importer. It has all the necessary conditions to establish a successful crude oil futures contract,” Yang Maijun, SHFE chairman, said at an industry conference.

 

Yang’s presentation slides at the conference stated that the draft proposal is for the contract to be denominated in yuan and use the type of medium sour crude that China most commonly imports.

It is hardly panic time yet: Reuters adds that industry participants with direct knowledge of the plan have said the contract would be priced in the yuan, otherwise known as the Renminbi, and the U.S. dollar. However, one can argue that the CNY-pricing is for now a test to gauge acceptance of the Chinese currency, and will take on increasingly more prominence as more and more countries, first in Asia and then everywhere else, opt for the CNY-denomination and in the process boost the Renminbi to ever greater parity with the USD.

Here are the punchlines:

“The yuan has become more international and more recognised by the financial market,” Chen Bo, Chinese trading firm Unipec’s executive general manager, told Reuters.

 

“I don’t think it would be unacceptable for the world to use the renminbi for commodities trading.”

Certainly not, although it would also entail a depegging the CNY from the USD, something which China is for now unable and unwilling to do. Because once the Yuan is freely priced, kiss all those Wal-Mart “99 cent” deals goodbye.

Which in retrospect may be just what the US wants: a very gradual and controlled dephasing of the USD’s reserve currency status. Recall that what the Fed wants at any cost is inflation which has so far failed to materialize at the level demanded by the Chair(wo)man thanks in part to cheap Chinese goods and ongoing US exporting of inflation to China. So if that means a spike in the prices of China imports – so key to keeping US inflation in check – so be it. Because we can already see the Fed’s thinking on the matter – certainly it will be able to always restore the USD’s supreme status in “15 minutes” or less when it so chooses.

Of course, by then China, and the Petroyuan, may have a very different view on the world.

 

No Planes, No Trains, And No Automobiles As Record Smog Shuts Beijing | Zero Hedge

October 7, 2013 8:21 pm / Leave a comment

No Planes, No Trains, And No Automobiles As Record Smog Shuts Beijing | Zero Hedge. (FULL ARTICLE)

China started re-opening roads and airports in Beijing and surrounding areas that have been shut by record high levels of smog. An estimated 430 million people were expected to travel during the holiday that ends today and with the air quality index “improving” from its highest possible level to below 200 (the line between heavy and medium pollution), some will be able to return home. The clips below are stunning (and no that is not ‘fog’); summed up best by one Shanghai-based accountant that Bloomberg reportsnoted, “I won’t go to heavily polluted places like China’s north region as it’s either hazardous to your health or causes trouble when traveling.”…

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Testosterone Pit – Home – Mostly Cloudy With Occasional Drones In The Afternoon

September 22, 2013 1:41 pm / Leave a comment

Testosterone Pit – Home – Mostly Cloudy With Occasional Drones In The Afternoon.

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