July 29, 2019

Chart of the Week: The PBoC is absorbing bad debt onto its balance sheet

by Fathom Consulting.

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In response to rising financial stress in China — as evidenced by rising bond defaults, increasing numbers of non-performing loans and rumours of yet another bank bailout over the weekend — the People’s Bank of China has stepped into action.

Since 2016, when we believe policymakers threw in the towel on their half-hearted attempt to rebalance, instead doubling down on the increasingly inefficient old growth model, the stock of assets held by the PBoC against other depository corporations has almost quadrupled.

If such lending is done to encourage banks to purchase non-performing loans with an implicit understanding that the central bank will not demand repayment should the lender default, then this effectively writes off the bad debt.

The PBoC’s books balance as its assets simply switch from the original claim on the bank to ownership of the non-performing collateral. If we are right, and the PBoC is absorbing bad debt onto its balance sheet, then this could amount to as much as 8 trillion yuan and rising.

As part of Refinitiv’s expanded China coverage, 300,000 new data series will be added to Datastream over the course of 2019. To accompany this new data offering, Fathom Consulting — in partnership with Refinitiv —will be adding a selection of new charts to Datastream’s existing library of 9000 images. The latest charts, released last week, cover new tourism statistics, soybean imports and residential construction.

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