Följ oss
the_ad_group(12516);

Nyheter

Is China at Risk of a Debt Crisis?

Publicerad

den

Is China at Risk of a Debt Crisis?

Is China at Risk of a Debt Crisis? China’s economy is showing clear signs of improvement as policy easing starts to feed through the economy: GDP growth increased in Q2, PMI data continues to improve and credit is easing.

Local government debt has been highlighted as one of the economy’s key vulnerabilities. The large absolute size and growth of local government debt together with the opacity of its financing has been highlighted as one of the key risks to China’s economy.

In this edition of the China Macro Monitor we analyse China’s government debt situation, roll-over risks and medium-term financing solutions. We find that while the growth rate and some of the financing methods are of concern, when the debts of the central government and local governments are combined they do not appear to be oversized relative to other countries or to pose a near-term systemic risk to the economy. Even when we add China’s government debt to private sector debt, China’s total indebtedness seems moderate relative to other countries (see chart below).

Near-term risks are low, but moves to increase transparency and controls through the development of municipal debt markets are necessary and likely. The central government now recognises that current restrictions on local government financing have led to a lack of transparency and unnecessary complexity. The central government has already started raising bond finance on behalf of some local governments and we believe that this pilot scheme will eventually pave the way for the development of a municipal bond market.

ETFS2014072601

ASSESSING CHINA’S LOCAL DEBT CONDITIONS

The central government’s crackdown on corruption led to a pull-back in local government investment in Q1 2014 in fear of being accused of indulging in excess. However, Premier Li Keqiang recently lambasted this behaviour and we have already started to see a reversal of cut-backs1. In the second half of this year we expect local governments to step-up policy implementation which will require funding. While some analysts fear debt-financed growth, we believe that leverage, especially in the government sector in China is sufficiently low enough to accommodate more debt. However, we believe that lack of transparency is a key issue and could inhibit confidence in China. Local government financing will likely be an area of reform in coming years. In this China Macro Monitor we assess the current level of indebtedness and explain how local governments finance themselves.

How local governments finance themselves

In contrast to most countries, local government debt in China is larger than central government debt2. Most of the debt is used to finance off-budget spending. Local government reliance on off-budget spending is related to the fiscal reform in 1994 when the central government’s share of fiscal revenue increased from less than 30% to around 50% in 20123. There were no corresponding changes made to expenditure assignments and local governments were saddled with the same if not more spending obligations but less access to tax revenue. According to the IMF, local governments are responsible for a large part of infrastructure spending, service delivery and social spending. Together that accounts for 85% of total expenditure. Because local governments have little flexibility on tax rates and policy they are reliant on transfers from the central government, which only cover current spending. For everything else, including the long term infrastructure spending, local governments need to rely on borrowing.

ETFS2014072602

However, local governments are technically prohibited from borrowing directly. To get around this problem, local governments have taken to off-budget mechanisms to raise finance. Local Government Financing Vehicles (LGFV) are companies set up by local governments that borrow from banks, trust companies and the bond market. They are usually set up for the sole purpose of infrastructure spending. This system of financing is often compared to public private partnerships used in both developed and emerging markets. However, the “private” here refers to the LGFV. While these companies may generate some revenue streams (e.g. toll charges, utility rights etc.) they are usually insufficient to cover debt repayments, requiring the local government to use its own revenue to make debt payments.

National Audit Office recognises debt obligations

In December 2013 the Chinese National Audit Office (CNAO) published for the first time a full audit of the nation’s government debt4. They identified how much of the debt is in LGFVs and specified whether the debt is a direct obligation, guaranteed or another contingent liability. This audit is likely to be a work-progress with potential revisions to come. Most of the debts are classed as direct obligations and given the nature of the Chinese market, with very little history of default, we are inclined to classify all the debts for which the government has guaranteed or is partially liable for under the CNAO definition as debts that the government bears full responsibility for.

ETFS2014072603

Despite being prohibited from borrowing since 1994, the audit has identified local government borrowing not only through LGFVs, but more directly through government agencies and other public institutions. The audit also included the debts of state-owned enterprises and other self-supporting enterprises that may not be included in the general government statistics for other countries5. That could leave the figures for China looking comparatively high.

ETFS2014072604

Banks play a central role in local government financing

Bank loans are the main source of financing for LGFVs, providing 57% of local government debt. Trust companies which are also regulated by the same entity that oversee banks, the China Banking Regulatory Commission (CBRC), provide about 8% of the debt financing. Bond financing provides another 10%. Build and transfer (BT) is a form of project finance where a company builds and operates an infrastructure project and eventually transfers it over to the government. BT accounts for another 8% of debt obligations.

ETFS2014072605

Ministry of Finance assisted bond issuance pilot: a precursor to a municipal bond market

The central government has recognised that local governments have debt financing needs and the charade of off-budget financing is untenable in the long-term. With transparency a central tenet of well-functioning debt markets the current system will need further reform. While the full development of a municipal bond market is some way off, the Ministry of Finance has been issuing bonds on behalf of some local governments and some local governments are able to issue bonds within a quota. A total of 10 local governments can issue bonds with Beijing, Jiangxi, Ningxia and Qingdao being added to the list in June.

Eventually we expect the government to bring in the necessary reform to allow local governments to raise bond finance more directly through something akin to the municipal bond market in the US. The pilot scheme with these 10 local governments is therefore an important precursor to further liberalisation and better oversight of local government financing.

Local government’s role in achieving targets reaffirmed

We believe that until this precarious system of financing is fully reformed local governments will shy away from long-term planning in fear of being caught up in the central government’s clamp-down on corruption.

The CNAO in a recent update claimed that growth in local government debt slowed in the second half of 2013 to 3.8%, down 7% from the first half of the year. We expect debt-financed local government spending continued to slow into the first part of 2014 before the central government reaffirmed the role of local governments in reaching its targets.

Premier Li Keqiang pressed local leaders in June to help the economy achieve its annual growth target. Li reminded local leaders of their “inescapable responsibility” to achieve this year’s economic targets and stressed that “no delay in action is allowed”.

Local government debt likely to rise

In light of the push to meet its annual growth targets we are likely to see local government debt financing grow. We acknowledge that rising leverage has its risks, but for now China’s government debt is quite moderate6. Indeed China’s government debt is significantly below other countries’ where debts are considered to be excessive. At the same time China’s economic growth is considerably higher than most countries with comparable or higher levels of debt.

ETFS2014072606

Refinancing alone will account for a large part of future debt issuance

Most local government debt is relatively short-dated with approximately 40% of all outstanding debt maturing in 2014 and 2015. Refinancing existing loans is likely to account for a large part of financing needs over the next year.

ETFS2014072607

Financing activity picks up sharply

In the month of June aggregate financing grew by 40% m-o-m, 90% y-o-y, in part aided by the message from the central government to local governments to stop procrastinating (as well as the general higher appetite for borrowing from households and corporates).

ETFS2014072608

Economy continues to respond positively to stimulus

Q2 2014 GDP growth surpassed consensus forecasts, rising to 7.5% q-o-q annualised (7.4% in Q1 2014) in a sign that stimulus is having a direct impact on the economy. Industrial production, manufacturing PMIs and retail sales all grew at a faster pace in June than in May. Early July data indicates this has continued into the second half of the year.

ETFS2014072609

The recovery path is unlikely to be incident-free. Given the central government’s focus on making sure the market is pricing risk appropriately, it is conceivable that it will let more companies default on loans to combat investor complacency and reduce moral hazard in the system. However, growth targets take priority and the government will do all in its power to ensure selective defaults do not become a systemic problem.

Investor sentiment continues to improve

With economic data becoming increasingly positive, investor sentiment has improved and China equities have started to perform. The China A share market (as measured by the MSCI China A Index) is currently trading around 9.5 times prospective earnings (11.1 times trailing earnings), making it one of the cheapest markets in the world. With H1 policy stimulus starting to take hold and further stimulus planned in the coming months, we anticipate local and foreign investor sentiment will continue to improve and push local equities higher.

ETFS2014072610

Important Information

This communication has been provided by ETF Securities (UK) Limited (”ETFS UK”) which is authorised and regulated by the United Kingdom Financial Conduct Authority (the ”FCA”).

Fortsätt läsa
Annons
Klicka för att kommentera

Skriv en kommentar

Din e-postadress kommer inte publiceras. Obligatoriska fält är märkta *

Nyheter

Michael Saylor’s bold Bitcoin bet and Strategy’s risk analysis

Publicerad

den

Michael Saylor’s bold Bitcoin bet and Strategy’s risk analysis Bitcoin price technical analysis: Where are the liquidation levels?
  • Michael Saylor’s bold Bitcoin bet and Strategy’s risk analysis
  • Bitcoin price technical analysis: Where are the liquidation levels?
  • What are real-world assets and why do we need tokenization?

Michael Saylor’s bold Bitcoin bet and Strategy’s risk analysis

Strategy (formerly MicroStrategy) has amassed a staggering $43 billion in Bitcoin, positioning itself at the forefront of the corporate “reserve race.” Under the leadership of Bitcoin maximalist Michael Saylor, the company now boasts an $84 billion market cap. But with such an aggressive strategy, how sustainable is its approach—and what risks lie ahead? We break it down in today’s analysis.

Bitcoin price technical analysis: Where are the liquidation levels?

A drop below $72,000 could flush longs, while a breakout above $90,000 may squeeze shorts. One key positive indicator is that Bitcoin continues to print higher lows since March 10, which preserves a bullish market structure in our view. Dive into our technical analysis.

What are real-world assets and why do we need tokenization?

Imagine owning a slice of a skyscraper or a piece of fine art with just a few clicks. Tokenization, the act of converting ownership rights to real-world assets (RWAs) into tradable tokens, has surpassed $10 billion in on-chain value, unlocking global 24/7 access to once-exclusive markets with liquidity, efficiency, and yield. Find out how it works.

Research Newsletter

Each week the 21Shares Research team will publish our data-driven insights into the crypto asset world through this newsletter. Please direct any comments, questions, and words of feedback to research@21shares.com

Disclaimer

The information provided does not constitute a prospectus or other offering material and does not contain or constitute an offer to sell or a solicitation of any offer to buy securities in any jurisdiction. Some of the information published herein may contain forward-looking statements. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties and that actual results may differ materially from those in the forward-looking statements as a result of various factors. The information contained herein may not be considered as economic, legal, tax or other advice and users are cautioned to base investment decisions or other decisions solely on the content hereof.

Fortsätt läsa

Nyheter

BSE0 ETF köper bara företagsobligationer med förfall 2030

Publicerad

den

Invesco BulletShares 2030 EUR Corporate Bond UCITS ETF EUR Acc (BSE0 ETF) med ISIN IE000I25S1V5, försöker följa Bloomberg 2030 Maturity EUR Corporate Bond Screened-index. Bloomberg 2030 Maturity EUR Corporate Bond Screened Index följer företagsobligationer denominerade i EUR. Indexet speglar inte ett konstant löptidsintervall (som är fallet med de flesta andra obligationsindex). Istället ingår endast obligationer som förfaller under det angivna året (här: 2030) i indexet. Indexet består av ESG (environmental, social and governance) screenade företagsobligationer. Betyg: Investment Grade. Löptid: december 2030 (Denna ETF kommer att stängas efteråt).

Invesco BulletShares 2030 EUR Corporate Bond UCITS ETF EUR Acc (BSE0 ETF) med ISIN IE000I25S1V5, försöker följa Bloomberg 2030 Maturity EUR Corporate Bond Screened-index. Bloomberg 2030 Maturity EUR Corporate Bond Screened Index följer företagsobligationer denominerade i EUR. Indexet speglar inte ett konstant löptidsintervall (som är fallet med de flesta andra obligationsindex). Istället ingår endast obligationer som förfaller under det angivna året (här: 2030) i indexet. Indexet består av ESG (environmental, social and governance) screenade företagsobligationer. Betyg: Investment Grade. Löptid: december 2030 (Denna ETF kommer att stängas efteråt).

Den börshandlade fondens TER (total cost ratio) uppgår till 0,10 % p.a. Invesco BulletShares 2030 EUR Corporate Bond UCITS ETF EUR Acc är den billigaste och största ETF som följer Bloomberg 2030 Maturity EUR Corporate Bond Screened index. ETFen replikerar det underliggande indexets prestanda genom samplingsteknik (köper ett urval av de mest relevanta indexbeståndsdelarna). Ränteintäkterna (kupongerna) ackumuleras och återinvesteras.

Invesco BulletShares 2030 EUR Corporate Bond UCITS ETF EUR Acc är en mycket liten ETF med tillgångar på 6 miljoner euro under förvaltning. Denna ETF lanserades den 18 juni 2024 och har sin hemvist i Irland.

Produktbeskrivning

Invesco BulletShares 2030 EUR Corporate Bond UCITS ETF Acc syftar till att ge den totala avkastningen för Bloomberg 2030 Maturity EUR Corporate Bond Screened Index (”Referensindexet”), minus avgifternas inverkan. Fonden har en fast löptid och kommer att upphöra på Förfallodagen.

Referensindexet är utformat för att återspegla resultatet för EUR-denominerade, investeringsklassade, fast ränta, skattepliktiga skuldebrev emitterade av företagsemittenter. För att vara berättigade till inkludering måste företagsvärdepapper ha minst 300 miljoner euro i nominellt utestående belopp och en effektiv löptid på eller mellan 1 januari 2030 och 31 december 2030.

Värdepapper är uteslutna om emittenter: 1) är inblandade i kontroversiella vapen, handeldvapen, militära kontrakt, oljesand, termiskt kol eller tobak; 2) inte har en kontroversnivå enligt definitionen av Sustainalytics eller har en Sustainalytics-kontroversnivå högre än 4; 3) anses inte följa principerna i FN:s Global Compact; eller 4) kommer från tillväxtmarknader.

Portföljförvaltarna strävar efter att uppnå fondens mål genom att tillämpa en urvalsstrategi, som inkluderar användning av kvantitativ analys, för att välja en andel av värdepapperen från referensindexet som representerar hela indexets egenskaper, med hjälp av faktorer som index- vägd genomsnittlig varaktighet, industrisektorer, landvikter och kreditkvalitet. När en företagsobligation som innehas av fonden når förfallodag kommer kontanterna som fonden tar emot att användas för att investera i kortfristiga EUR-denominerade skulder.

ETFen förvaltas passivt.

En investering i denna fond är ett förvärv av andelar i en passivt förvaltad indexföljande fond snarare än i de underliggande tillgångarna som ägs av fonden.

Förfallodag: andra onsdagen i december 2026 eller sådant annat datum som bestäms av styrelseledamöterna och meddelas aktieägaren

Handla BSE0 ETF

Invesco BulletShares 2030 EUR Corporate Bond UCITS ETF EUR Acc (BSE0 ETF) är en europeisk börshandlad fond. Denna fond handlas på flera olika börser, till exempel Deutsche Boerse Xetra.

Det betyder att det går att handla andelar i denna ETF genom de flesta svenska banker och Internetmäklare, till exempel DEGIRONordnet, Aktieinvest och Avanza.

Börsnoteringar

BörsValutaKortnamn
XETRAEURBSE0

Största innehav

NamnCUSIPISINKupongräntaVikt %
Fresenius SE & Co KGaA 5.125% 05/10/30D2R9K1AL3XS26987136955.1252.55%
Mercedes-Benz Group AG 2.375% 22/05/30D1668RZW0DE000A289XG82.3752.19%
Akzo Nobel NV 1.625% 14/04/30N01803YV6XS21565982811.6252.08%
Eni SpA 0.625% 23/01/30T3666JJV9XS21073154700.6251.98%
Prologis International Funding II 2.375% 14/11/30L7763MAD2XS19046903412.3751.78%
REWE International Finance BV 4.875% 13/09/30N74119AA1XS26798981844.8751.65%
CaixaBank SA 4.25% 06/09/30E2R193R97XS26768144994.2501.64%
Verizon Communications Inc 4.25% 31/10/30XS25508811434.2501.64%
Liberty Mutual Group Inc 4.625% 02/12/30U52932BR7XS25616473684.6251.62%
AXA SA 3.75% 12/10/30F0609NBG2XS25372511703.7501.60%

Innehav kan komma att förändras

Fortsätt läsa

Nyheter

US regulatory shift provides a beacon for optimism

Publicerad

den

Since President Trump appointed Mark Uyeda as acting SEC chair two months ago, many investigations into crypto businesses have been dropped, as the SEC moves away from regulation by enforcement and works to create a framework for digital assets. As regulations become clearer and news flow turns more positive, crypto prices—which dropped sharply this week—should begin to better reflect the new regulatory landscape in the US.

Since President Trump appointed Mark Uyeda as acting SEC chair two months ago, many investigations into crypto businesses have been dropped, as the SEC moves away from regulation by enforcement and works to create a framework for digital assets. As regulations become clearer and news flow turns more positive, crypto prices—which dropped sharply this week—should begin to better reflect the new regulatory landscape in the US.

We believe this regulatory shift could ultimately help trigger the next leg of the current bull run, as investors better understand the significance of regulatory clarity and seek to acquire bitcoin and altcoins at what we believe are currently very favorable levels.

Market Highlights

SEC Dismisses Crypto Enforcement Actions

The SEC dropped its enforcement actions against crypto-related companies Kraken, Consensys, and Cumberland DRW.

This indicates a shift in SEC’s regulatory approach, favoring clearer guidelines over enforcement actions. Such a pivot could foster a more predictable environment, encouraging innovation within the sector.

Banks to Engage in Crypto Activities

The FDIC has rescinded previous guidelines which prevented financial institutions from engaging with crypto activities without prior sign-off.

By removing bureaucratic hurdles, banks may more readily offer crypto-related services, potentially leading to broader adoption and integration of digital assets.

Bitcoin ETFs Inflow Streak Surpassed $1 Billion

US spot Bitcoin ETFs have recorded a 10-day inflow streak exceeding $1 billion marking the longest such streak in 2025.

This underscores growing institutional and retail investor confidence in Bitcoin as an asset class that helps increase market stability and possibly paving the way for the approval of other crypto-based financial products.

Market Metrics

All NCITM constituents had negative performance last week, with XRP (-10.8%) and UNI (-10.7%) seeing the steepest declines. ETH also experienced a sharp drop (-9.1%), contributing to NCITM’s underperformance relative to BTC (-2.9%). The NCITM -4.2% decline reflects a broader risk-off sentiment in the crypto market, as investors reassess their positions amid ongoing macroeconomic uncertainties.

NCITM (-4.2%) extended its underperformance last week, deepening year-to-date losses. Traditional indices like the S&P 500 (-1.5%) and Nasdaq 100 (-2.4%) saw smaller declines. The gap between crypto and other risk assets continues to widen, while gold has emerged as the top performer in 2025, gaining nearly 20% amid ongoing macroeconomic uncertainties. This trend highlights a growing risk-off sentiment, with investors shifting toward defensive assets and away from high-volatility investments.

Fortsätt läsa

21Shares

Prenumerera på nyheter om ETFer

* indicates required

21Shares

Populära