PLP Advisors, LLC

Financial Advisor Talks About the Possibility of Chinese Debt at Unsustainable Levels

Dennis Tubbergen's radio show is available as podcasts at http://www.everythingfinancialradio.com.

 

Grand Rapids, MI -- (ReleaseWire) -- 04/30/2013 -- Do you have trouble keeping up with what is going on in the U.S. economy?

Dennis Tubbergen, a financial advisor, author, radio show host and CEO of PLP Advisors, LLC can help out. Whether people enjoy his weekly newsletter at http://www.moving-markets.com or his blog at http://www.dennistubbergen.com, Tubbergen is dedicated to sharing his viewpoints and opinions. On April 23, 2013 his blog was titled Chinese Debt at Unsustainable Levels?

"CNBC recently reported that a senior Chinese auditor has concluded that local government debt in China is out of control," began Tubbergen. "It is unsustainable and could lead to a crash more severe than the housing market crash that took place in the United States."

Tubbergen quotes below from the April 16, 2013 article.

A senior Chinese auditor has warned that local government debt is "out of control" and could spark a bigger financial crisis than the U.S. housing market crash.

Zhang Ke said his accounting firm, ShineWing, had all but stopped signing off on bond sales by local governments as a result of his concerns.

"We audited some local government bond issues and found them very dangerous, so we pulled out," said Mr. Zhang, who is also vice-chairman of China's accounting association. "Most don't have strong debt servicing abilities. Things could become very serious."

The International Monetary Fund, rating agencies and investment banks have all raised concerns about Chinese government debt. But it is rare for a figure as established in the Chinese financial industry as Mr. Zhang to issue such a stark warning.

"It is already out of control," Mr. Zhang said. "A crisis is possible. But since the debt is being rolled over and is long-term, the timing of its explosion is uncertain."

Local government bond issuance soared in 2008, when Beijing loosened borrowing constraints to soften the impact of the global financial crisis. Provinces, cities, counties and villages across China are now estimated to owe between Rmb 10 trillion and Rmb 20 trillion ($1.6 trillion and $3.2 trillion), equivalent to 20-40 percent of the size of the economy.

Last week, Fitch cut China's sovereign credit rating, in the first such move by an international agency since 1999. On Tuesday, Moody's cut its outlook for China's rating from positive to stable.

Local governments are prohibited from directly raising debt, so they have used special purpose vehicles to circumvent these rules, issuing bonds under the vehicles' names to fund infrastructure projects.

"Local governments in China made the decision to borrow, hoping that conditions would improve in the future," explains Tubbergen. "Trouble is, the global financial crisis was caused by debt excesses and by borrowing to make things seem more normal at that time."

Tubbergen goes on to say local governments will ultimately, in his view, only aggravate the ultimate economic pain that is inflicted when the ugly process of deleveraging takes place in earnest.

"China, like most of the rest of the world, will not escape the consequences of debt excesses," concludes Tubbergen.

To read the blog in its entirety go to http://www.dennistubbergen.com and select his April 23, 2013 entry.

Tubbergen’s syndicated radio show can be heard on metro Michigan stations WTKG 1230 AM and WOOD Newsradio1300 AM and 106.9 FM.

About Dennis Tubbergen
Dennis Tubbergen has been in the financial industry for over 25 years and has his corporate offices in Grand Rapids, Michigan. Tubbergen is CEO of PLP Advisors, LLC and has an online blog that can be read at http://www.dennistubbergen.com. To view Tubbergen’s latest Moving Markets? newsletter, go to http://www.moving-markets.com.

The opinions expressed herein are those of the writer and not necessarily those of USA Wealth Management, LLC. This update may contain forward-looking statements, including, but not limited to, statements as to future events that involve various risks and uncertainties. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual events or results to differ materially from those that were forecasted. Therefore, no forecast should be construed as a guarantee. Prior to making any investment decision, individuals should consult a professional to determine the risks, costs, benefits and fees associated with a particular investment. Information obtained from third party resources is believed to be reliable but the accuracy cannot be guaranteed.