After receiving dozens of phone calls and text messages from banks touting cheap, unsecured and easy-to-get consumer loans, Eric Zhang visited one of China’s largest lenders in June and borrowed 400,000 yuan (US$57,530) at an interest rate of 4 percent.
However, there was a catch — he had to sign a letter promising the money would not be invested in property or stocks. That did not stop Zhang. A few days later, he had found a merchant who helped him make a fake purchase and move the cash to his brokerage account.
“I don’t think the bank can track the money and identify its real use,” said Zhang, who works at a private equity firm in Shanghai.
“It’s a great trade for me,” he said, after seeing his fresh stock investments surge 6 percent in one month.
Zhang’s story is playing out across China as retail investors embrace the euphoria of the biggest bull run since 2015. Banks and financing platforms are being swept along as punters look for quick cash to bet on the world’s most volatile equity market. It is a dangerous strategy both for already overextended households as well as lenders, one that is drawing closer scrutiny from regulators.
Authorities are also partly to blame. With the economy reeling from the pandemic, policymakers have pumped out liquidity and eased curbs on shadow banking to backstop small businesses and struggling families.
The easy money has fueled arbitrage with retail investors and corporates tapping the cheaper rates to invest in everything from high-yielding structured deposits to wealth management products and stocks.
Leverage has climbed even as millions of Chinese lost their jobs during the pandemic. Household debt rose to a record 59.7 percent of GDP in the second quarter, doubling from 2012, thanks to a housing boom and the rise of online lenders such as Ant Group (螞蟻集團), which has made it easier for consumers to borrow via its ubiquitous Alipay app.
The build-up of risk has unnerved regulators. In a notice to banks last month, the People’s Bank of China asked lenders to report data on consumer credit extended jointly with Internet platforms to give it a clearer picture of about US$6.6 trillion in outstanding consumer loans. Credit extended by fintech startups, peer-to-peer lenders and many other channels remain unregulated.
“Unlike credit card debt, the use of consumer loans is harder for banks and regulators to monitor,” said Chen Hao, a Shanghai-based analyst with CIB Research. “Once money goes into the stock market, it will bring sizable risks to banks given the current volatility.”
The CSI 300 Index has gained 13 percent this year. Trading has surged, with daily turnover exceeding 1 trillion yuan for 17 consecutive days. Outstanding margin debt on exchanges has risen at the fastest pace since 2015, to more than 1.4 trillion yuan.
Unlike in most major markets, China’s individual investors account for the lion’s share of local stock trading and have been prone to extreme swings in sentiment that can have ripple effects on the economy.
State media fueled the bull run in a bid to show the world that China was emerging from the virus outbreak. Beijing has since tried to cool the fervor by clamping down on illicit margin lending platforms, but the fear of missing out is extreme.
Nvidia Corp CEO Jensen Huang (黃仁勳) is expected to miss the inauguration of US president-elect Donald Trump on Monday, bucking a trend among high-profile US technology leaders. Huang is visiting East Asia this week, as he typically does around the time of the Lunar New Year, a person familiar with the situation said. He has never previously attended a US presidential inauguration, said the person, who asked not to be identified, because the plans have not been announced. That makes Nvidia an exception among the most valuable technology companies, most of which are sending cofounders or CEOs to the event. That includes
TARIFF TRADE-OFF: Machinery exports to China dropped after Beijing ended its tariff reductions in June, while potential new tariffs fueled ‘front-loaded’ orders to the US The nation’s machinery exports to the US amounted to US$7.19 billion last year, surpassing the US$6.86 billion to China to become the largest export destination for the local machinery industry, the Taiwan Association of Machinery Industry (TAMI, 台灣機械公會) said in a report on Jan. 10. It came as some manufacturers brought forward or “front-loaded” US-bound shipments as required by customers ahead of potential tariffs imposed by the new US administration, the association said. During his campaign, US president-elect Donald Trump threatened tariffs of as high as 60 percent on Chinese goods and 10 percent to 20 percent on imports from other countries.
Taiwanese manufacturers have a chance to play a key role in the humanoid robot supply chain, Tongtai Machine and Tool Co (東台精機) chairman Yen Jui-hsiung (嚴瑞雄) said yesterday. That is because Taiwanese companies are capable of making key parts needed for humanoid robots to move, such as harmonic drives and planetary gearboxes, Yen said. This ability to produce these key elements could help Taiwanese manufacturers “become part of the US supply chain,” he added. Yen made the remarks a day after Nvidia Corp cofounder and chief executive officer Jensen Huang (黃仁勳) said his company and Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) are jointly
MARKET SHIFTS: Exports to the US soared more than 120 percent to almost one quarter, while ASEAN has steadily increased to 18.5 percent on rising tech sales The proportion of Taiwan’s exports directed to China, including Hong Kong, declined by more than 12 percentage points last year compared with its peak in 2020, the Ministry of Finance said on Thursday last week. The decrease reflects the ongoing restructuring of global supply chains, driven by escalating trade tensions between Beijing and Washington. Data compiled by the ministry showed China and Hong Kong accounted for 31.7 percent of Taiwan’s total outbound sales last year, a drop of 12.2 percentage points from a high of 43.9 percent in 2020. In addition to increasing trade conflicts between China and the US, the ministry said
RSS