ML-Implode News - China's "Subprime" Crisis Is Here

The amount of loans classed as nonperforming at Chinese commercial banks jumped 51 percent from a year earlier to 1.27 trillion yuan by December, the highest level since June 2006, dataÂ from the China Banking Regulatory Commission showed on Monday.Â The ratio of soured debt climbed to 1.67 percent from 1.25 percent, while the industry's bad-loan coverage ratio, a measure of its ability to absorb potential losses, weakened to 181 percent from more than 200 percent a year earlier.Â Â
The news looksÂ to have scared Chinese authorities into reacting. Note that they aren'tÂ curbing the ability of Chinese banks to lend or asking them to write off bad credit. Instead they're considering putting aside checksÂ already in place that are aimed at ensuring the health of the financial system: by reducing the ratio of provisions that banks must set aside for badÂ debt, currently set at a minimum 150 percent, as Bloomberg News reported on Tuesday.
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The dynamic is clear. A splurge of new lending can help to dilute existing bad loans, but only at a cost. This is a game that can't continue forever, particularly if credit is being foisted on to an already over-leveraged and slowing economy. At some point, the music will stop and there will have to be a reckoning. The longer China postpones that, the harder it will be.

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China's "Subprime" Crisis Is Here