Economists are predicting a state bailout of the Chinese banking system, turning what has been wishful thinking by bears and short sellers into a mainstream view.
Nine of 15 respondents in a Bloomberg survey, including Standard Chartered Plc and Commonwealth Bank of Australia, predicted a government-funded recapitalization will take place within two years.
The poll was conducted at the end of June.
Among those who provided estimates of the cost, a majority said it will exceed US$500 billion, Bloomberg reports.
While a bailout of that size would be a far cry from the US$10 trillion forecast of US hedge fund manager Kyle Bass in February, the responses reflect widespread concern that Chinese lenders will struggle to cope as bad loans surge.
Even as some analysts said a state recapitalization would put the banking system on a stronger footing, 80 percent of respondents predicted news of a rescue would weigh on Chinese markets — dragging down bank stocks and the yuan while pushing up government borrowing costs and credit risk.
“A recapitalization will happen after the Chinese government comes clean with the true non-performing loan figure,” said Kevin Lai, the Hong Kong-based chief economist for Asia ex-Japan at Daiwa Capital Markets.
“That will require a lot of money creation.”
At CBA in Sydney, analyst Li Wei said the Bloomberg survey was the first time he’d estimated the timing and cost of a recapitalization.
The topic became more prominent after an article calling for the nation to tackle leverage and bad debt appeared in the People’s Daily, the mouthpiece of China’s ruling Communist Party, in May.
That same month, Societe Generale SA issued a 48-page report wargaming restructuring options for China’s state-owned enterprises and banks.
– Contact us at [email protected]