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【出版时间及名称】：2010年3月19日 China: The UDIC Risk
【作者】：credit suisse
【文件格式】：pdf
【页数】：13页
【目录或简介】：A forthcoming shock in 2011?
• China has about 8,800 UDICs – local governments infrastructure investment
vehicle – and half of them were created over the past 18 months amidst the
lending rush to boost growth. We see them as the biggest risk to China’s
economic and financial stability over the next two years.
• It is hard to quantify the potential problem with precision due to limited data
availability. We reckon that UDICs have about RMB 8tn in outstanding bank
debt. 80% of the debt went for infrastructure projects, and over 70% were at
prefectural/city or county/district level, where revenue flows and credit
worthiness are poor.
• In our view, China’s UDICs share many common characteristics with
investment banks’ SPIVs, which caused the financial crisis – lack of
transparency, high leverage, reliance on short-term funding, land-based
valuation, and lack of liquidity in assets.
• While the consensus believes that the local government debt problem is a
long-term issue, we suspect it could arrive as soon as in 2011. If the property
market corrects, banks are likely to adjust the valuation of their land
collaterals, and that could trigger a chain of loan recalls. The potential
Achilles’ heel for UDICs is the valuation of the collateralized land.
• RMB 8tn of UDIC exposure is equivalent to 19% of outstanding bank lending,
24% of GDP and 180% of the equity base of all Chinese banks. Because of
the lack of transparency on the size and distribution of the UDIC debt for
quantifying the potential risk, we would not be surprised to see an equity
market panic, if one or two UDICs fail in the future.
• Time duration will define the severity of any crisis. If such a crisis lasts for two
weeks, it would largely be a market panic. If it lasts for two months, fixed
asset investment could be affected. If it lasts for two years, China may repeat
the footstep of Japan in the 1990s, but without a proper social safety net. We
expect any crisis to be an abrupt but short one.
• If a crisis erupts, we expect Beijing to step in quickly to stop banks from loan
recalls, and to separate the UDIC loans from banks’ balance sheets and
launch new stimulus. The central government has the fiscal strength and has
learned lessons from the on-going financial crisis, so we expect a quick fix,
but suspect decisive actions will not come until and unless a crisis strikes.
• We could be wrong, if (1) Beijing tackles the UDIC debt now; (2) the property
market remains on the rise and growth stays strong for a decade. At this
juncture, the authorities seem to be doing the opposite by cutting off
guarantees to the UDICs, and engineering a property market correction.
• We would raise the UDIC issue as a major risk for China, probably the biggest
one seen over the past decade. But we will not change our forecasts, as the
timing of any crisis is hard to predict at this moment. However, all our forecast
numbers and expected credit ratings would be subject to revision, should the
situation deteriorate.
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