Following earlier comments that 7.0% is China’s bottom-line GDP growth for the year (they promise), rumors are emerging of a much more significant shift in China’s mis-allocation of capital strategy. UBS reports rumors that the PBOC is planning to take the ultimate step in stopping the over-capacity problem stifling the cement and steel industry by banning banks from making new loans to these industries (and disallowing the companies from issuing short-term debt to meet their liquidity needs). Have no fear though, as the cessation of credit provision to these over-stuffed industries ‘directly’ will be met by an indirect mis-allocation of capital via a CNY260 billion rail-road investment fund (aimed at maintaining stable economic growth and employment) including building the world’s longest tunnel. The ultimate in central-planning largesse – directing both fiscal investment into dead-end projects (see Spain) and ad hoc monetary injections to save banks one by one.
- *UBS SAYS SPECULATION PBOC BANS LOANS TO OVERCAPACITY INDUSTRIES
- *UBS SAYS BANKS DENY PBOC NOTIFICATION IN ITS CHECKS WITH BANKS
- *CHINA SECURITIES JOURNAL REPORTS ON RAILROAD FINANCING PLAN
- *CHINA MAY SUBMIT RAIL INVESTMENT FUND PLAN IN SEPT.: SEC. NEWS
- *CHINA RAIL FINANCING REFORM PLAN MAY BE OUT YR-END:SEC. JOURNAL
UBS says in a note to clients that there is speculation the People’s Bank of China has internally notified banks that they are strictly forbidden to offer new loans to industries with excess capacity and companies in those industries are not allowed to issue short debentures, convertible bonds or corporate bonds to raise money.
UBS says rumors came from Sina Weibo, Wechat and Digital Cement
UBS says some banks and cement companies have denied they have received the notification based on its own checks, according to note from analyst Mick Mi
Via China Daily,
The central government is counting on investments in railways as a way to boost economic growth and to solve overcapacity problems in steel and cement production, sources close to the government said.
The State Council is expected to review a plan to build the world’s longest undersea tunnel across the Bohai Strait with a total investment of CNY260 billion and plans for an industry fund for the railway industry as early as September.
Of course, this will all work out great as the fading urbanization dream leaves a train to nowhere since rural workers’ ability afford travel will be severely limited should thetrain actually be created to run at anything other than a huge loss.