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While old news in some ways as Jubak admits, China has gotten crazier over the years. Part of China's GDP growth was building a new empty capital for inner Mongolia, high speed rails to nowhere and similar craziness. Like with Japan in the 90s the bubble will bust and China will start going backwards relative to the rest of the world again like Japan which pioneered many of the gimmicks used in China.I always felt Jubak worth while
here's a jem>
So how did the asset management companies pay for the purchase of that $287 billion in bad loans? They certainly didn't pay cash. Instead, they issued bonds to the banks in exchange for the bad loans. The bonds, of course, were backed by the promise that the asset management companies would gradually sell off or collect on the bad loans in time to redeem the bonds. And in the meantime, they'd pay the banks interest on those bonds.
Neat, huh? In one swell foop, the state-owned banks got $287 billion in bad loans off their books and turned deadbeat loans that would never pay off into streams of income from these bonds. To read more on this neat bit of financial engineering, check out this research paper (.pdf file).
While old news in some ways as Jubak admits, China has gotten crazier over the years. Part of China's GDP growth was building a new empty capital for inner Mongolia, high speed rails to nowhere and similar craziness. Like with Japan in the 90s the bubble will bust and China will start going backwards relative to the rest of the world again like Japan which pioneered many of the gimmicks used in China.I always felt Jubak worth while
here's a jem>
So how did the asset management companies pay for the purchase of that $287 billion in bad loans? They certainly didn't pay cash. Instead, they issued bonds to the banks in exchange for the bad loans. The bonds, of course, were backed by the promise that the asset management companies would gradually sell off or collect on the bad loans in time to redeem the bonds. And in the meantime, they'd pay the banks interest on those bonds.
Neat, huh? In one swell foop, the state-owned banks got $287 billion in bad loans off their books and turned deadbeat loans that would never pay off into streams of income from these bonds. To read more on this neat bit of financial engineering, check out this research paper (.pdf file).
China is a black box, economically, thanks to their government.
