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The China Banking Regulatory Commission points to dangers of the Non Performing Loans ratio rebounding and serious risks in the financial sector from bad loans. CBRC chairman, Liu Mingkang, points to the risks associated with local-government financing platforms, and the real estate sector and industries with excess capacity, in the 128 page report for 2009 shown on its website. And he points out that fundamental cracks and flaws internationally, that were exposed by the global financial criis of 2008, have still to be resolved. He cites the regulatory issues, "too-big-to-fail" issue for large financial institutions, cross-sector and cross-country risk contagion toxic assets, and the budget deficits facing European countries, as major issues posing systemic risk.

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Compared to the situation in 2008-2009 during the global financial crisis with the excess supply of labor, China in 2012 faces an excess in demand for labor. In 2009 about 20% of migrant workers were unemployed when the crisis hit, and wages dropped 10% for migrant workers, according to the Chinese Academy of Sciences and Stanford University. The situation three years later is one of tight labor markets and higer wages. A large stimulus in not only not needed today in the way it was in 2008-2009 as a way to maintain social stability, it would reduce the benefits of the anti-inflationary steps taken in 2011-2012, by putting more pressure on wages and prices. Manufacturing sector wages increased by 20.1% in 2011, according to China's statistics bureau. This may be why the Chinese government is taking measured steps to avoid creating more bad loans through indiscriminate lending, and being more selective in accelerating development projects in the pipeline. According to Hong Kong's new Chief Executive Officer China plans to have about 7% growth. This shift in approach would help China refocus on growth strategies recommended in the recent Development Reform Commission and World Bank Report on China....

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Signs of a serious bubble in house prices in Canada. Home prices in February 2011 rose 8.8% from the year before, to 365,000 Canadian dollars. This is more than double the average home price of C$158,145 in 1999, according to the Canadian Real Estate Association. A comparison with the U.S. shows home prices going up 58% between 1999 and 2006, according to the National Association of Realtors, and falling 18% after the subprime mortgage crisis. By contrast home prices in Canada went down in 2008-2009 during the global financial crisis but are now back up and surpassed the previous high. This suggests the Canadian real estate market is facing a serious bubble comparable to or exceeding the bubble in the U.S. Trends that have supported the market such as Chinese buyers in Vancouver and Toronto, depend largely on the strength of the high economic growth in China and overseas buyers. Other weaknesses- the Canadian Association of Accredited Mortgage Professionals pointed out in a study in January that of the 400,000 first time home buyers during 2010, about 50,000 would have high-debt service ratios if interest rates, now at between 2-4%, were to rise to 5%. The Canada economst at Capital Economics, David Madani, says he expects a correction of 25% in the next 3 years, as this boom unwinds. He points out that house prices are now 5.5 times disposable income per worker, compared to an historical average of 3.5....

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Rising food prices in China have pushed China's consumer price index to a two year high of 5.1% in November, 2010. Rising prices of cooking oil have hit Chinese who live on small incomes the hardest. Food represents about one third of the CPI, but it accounts for 75% of the index's rise. Chinese housing prices have gone up significantly making it hard for new homeowners, now that food and fuel prices are following. The National Developmment and Reform Commission announced a 3.77% rise in retail gasoline prices, to about $3.50 a gallon, an increase of 11% in about one year. Wholesale soyabean oil rose 23% in 2010 to about $1451 a metric ton, with most of the rise since July. China's government response was to impose price controls, asking the largest producers to cap retail prices through March 2011. It also quintupled the fine to 5 million yuan, or $750,000. And the government auctioned off millions of metric tons from its strategic national reserves in Xinjiang and Shandong. But price controls are discouraging production. One mid-size producer in Shanghai, says he has deactivated half his plant, instead off maximixing output ahead of the Lunar year in February. His warehouse is filled with 20,000 boxes of unsold oil, with the production date Nov 23, around the time price controls went into effect and a large grocery distributor halved his order. Edible oil is the third biggest packaged food outlay for ordinary Chinese, after yogurt and milk, and it has a big impact on the lives of the average family....

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The author Li Congjun, is head of the Xinhua News agency, official press agency of the People's Republic of China. He calls for rebalancing the global economy with China depending more on domestic consumption, efforts to restrain the excesses of property and asset price bubbles, and renewed focus on technology and investment.

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Prof. Scott Kennedy of the Research center for Chinese Politics and Business, voices concerns of experts who think that the $585 billion stimulus and the doubling of lending this year, increase in exports by a third last month, all point to an economy that is expanding too quickly. Kennedy says that no one defies economic laws, that eventually endless growth can get get you in trouble. The concern is whether the overexpansion of credit and the size of the stimulus may have led to overreaction in stimulus spending. People's Daily newspaper of China said that China's leaders are moving much faster than leaders of developed nations. But the flip side of this is that in the rush to increase spending there may be a lot of wasteful spending resulting in many bad loans a few years from now.

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Wang Huning, who has shaped the policies of three Chinese presidents, was a professor at Fudan University in Shanghai, before beng selected by president Jiang Zemin in 1995 to join the Communist Party of China's Central Policy Research office. The Policy Research Office provides research and guidance on foreign and domestic policy to China's leadership body, the Politburo. Huning was dean of the law school at Fudan, and head of its international politics department. He studied French at a foreign languages school during the Cultural Revolution upheavals in China, before going to Fudan University in 1978. Xi Jinping, the current president, was sent like many other Chinese leaders to work on a farm in the countryside during that period. In that same year 1978, Li Keqiang, the current prime minister moved to Peking University, after taking the first university entrance exams in 1977 following the Cultural Revolution. Li studied western constitutional law, later focussing on urbanization for his postgraduate work. Huning studied in the U.S. in 1989 and is familiar with the American system, western concepts of government and economy. His specialization at the international politics department was in comparitive politics- the systems of government of different countries- and he is seen by experts as having been a key influence in defining China's path making move to build a market economy under public ownership, seeing it possible for the two to work together. In 1991 Huning published "America Against America," critiquing the American political system and pointing out that in American democracy major economic decision making powers still rested mainly in private consortiums, with this acting as a constraint on political democracy. These ideas gradually evolved into ways to manage China in a world with alternative systems and political history. For Huning the question facing China was one of of finding its own workable model based on its history and experience, and need to manage the transition to a modern economy in a stable environment. Huning is now part of the Politburo and a candidate for a seat on the Standing Committe in 2017. At 57, he is expected to be part of the leadership for the next decade, having helped three presidents shape domestic and foreign policy, setting the direction for China's transition to a modernized economy and a political system that accomodates the needs of a new generation....

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Krugman points to the economic muddle that China is getting itself into. He says one way of looking at what is happening now with high inflation is that inflation is the market's way of undoing the currency manipulation that China has engaged in. By following aweak currency policy to protect export interests China has created an artificially high trade surplus. But this is now turning into a lose-lose proposition for both China and the US as market forces push wages and prices up, whittling away at any competitive advantage of China's weak currency policy. He says some estimates he has seen show that Chinese undervaluation could be gone in two or three years. Chinese consumers are asked to accept interest on savings limited to 2.75% and below inflation, with the spread designed to help banks earn their way out of bad loans made during the stimulus lending binge of 2009-2010. What is happening is a massive allocation of capital away from consumers to lending for state owned companies that have created overcapacity in many industries, and use part of this capital to engage in real estate speculation. Krugman says China may be on its way to some kind of crisis with collateral damage to the rest of the world as it is a major importer of commodities from Canada, Brazil, Argentina, Australia, and a major importer of high tech goods from Germany and the USA....

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The Trump administration proposes a zero policy for Iranian oil imports which says the U.S. will grant zero exemptions to countries importing Iranian oil.  Big importers China and India are likely to resist this policy.

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The U.S. Treasury Dept reported that Japan's holdings of Treasurys increased to $1.12 trillion in August 2012, compared to China's holdings of $1.15 trillion. Japan increased its holdings as it continued its effort to stem the yens rise. China's holdings are declining.

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Nouriel Roubini has proven correct on global financial issues. He said in an interview on the sidelines of a symposium in Malaysia, that China needs to revalue its currency for its own sake. China will see a growth collapse in the next 2-3 years if it fails to do so. His point is that China can still maintain growth by shifting to domestic consumption and less infrastructure spending and exports. In his view growth should not be affected if China exports less and consumes more. He points to the decrease in consumption as a share of GDP from 45% to 36% in the last ten years- this ratio is 70% in the USA. A cheap yuan keeps foreign goods unaffordable and protects state owned companies which also get cheap credit, as keeping the yuan low requires China to keep interest rates artificially low. What this does is make a massive transfer of income from the household sector to the state owned companies, just at the time when China needs to do the very opposite of this. And compounding the problem is that the 25% of China's GDP that is made up of retained earnings of mostly state owned companies, goes into real estate and production facilities. See the link to David Barboza in the New York Times who points to the wasteful spending and real estate speculation by state owned companies. Roubini cites the automobile sector where capacity has doubled in the last year to 20 million, when the domestic market increased by 50% to 10 million vehicles. The stimulus only increased the effect of surplus capacity and misallocation of investment, with highways to nowhere and brand new airports that are three quarters empty. The Chinese leadership is beginning to grasp this, but the state owned companies and other interests who benefit fromm the old model, may make it difficult to reverse the trends. A lot is at stake in this, as it affects the U.S., as well as countries dependent on China's imports such as Australia, Canada, Brazil and Germany. ...

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China's exports were able to show year over year growth of 7.6% in the first quarter of 2012, a sharp decline from 20.3% in 2011. As a result IMF estimates of China's long term current account surplus which were about 7% of GDP in the World Economic Outlook in Sept. 2011 may now be lowered to about 5%. This would reduce the strength of arguments that the yen is undervalued. The IMF is now engaged in making estimates for current account balances till 2017. China's current account surplus peaked at 10.1% of GDP in 2007 and the IMF forecasts in 2008 were for this to remain at 10% for the long term. The situation is rapidly changing because the most recent estimates from China's State Administration for Foreign Exchange show the actual current account surplus for 2011 at 2.8% of GDP. Since the 2010 Group of 20 nations summit meeting when China was pressured to reduce its trade surplus and let the yuan appreciate, the yuan has appreciated by 8.3%.

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Soren Skou, the head of the container division of Demark shipping line A.P. Moller Maersk A/S, says the volumes worldwide are expected to increase by 4% in 2012 over the prior year, compared to the 7% increase in 2011. This reflects the deteriorating conditions especially in Europe for goods from China. China is also losing competitiveness in relation to countries like Vietnam and Bangladesh for shoes, toys and labor intensive goods. Tim Smith, Maersk's head for the North Asian region, says the container shipping industry will see annual growth slow from double digit increases to somewhere between 5 to 7%.

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World Bank chief Zoellick sees advantages for China to remake its industrial structure and its society especially boosting local wages and increasing the purchasing power of ordinary Chinese through a strengthening of the yuan.

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The Economist points out that China's total debt of government, corporate and households has grown by about 100% of GDP since 2008. The 2009 crisis led to rapid increase in debt. It is now about 250% of GDP, according to the Economist. Slower growth of below 7% risks reducing China's ability to service this debt. About half of this debt is owed by state owned companies and property developers. China can use its sovereign reserves to continue supporting bank and state owned companies. Investor's are pricing bank shares to reflect about 10% of this debt as bad debt even though government estimates are much lower. The reserves provided China time to fix the banking system since 2008, yet the debt keeps growing and China has failed to take strong action in the last 6 years. Complacency is a problem, and the incentives for local governments to continue prior practices that increase debt continue. As Krugman and other experts have pointed out at some point the rules of finance will apply to China as they have for other countries that faced a debt crisis- Japan in the late 1980's, South Korea and other Aisan countries in 1997, and the U.S. in 2008. Even without a crisis through deft managemen and use of reserves China risks zombifying the economy as old loans are backed up by new loans, with the further risk of misallocation of capital or poor use of capital. This lowers productivity of capital and hurts development. With poor statistics such as the figure of 1% of debt being bad debt cited here, the problems of complacency can be magnified, as there is less reason for a strong response....

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China's jobs situation is holding up better than expected with lower levels of economic growth. In 2014 there were 115 job openings for every 100 applicants, according to an official labor survey. Part of the reason is that the services sector is playing a larger role in growth. The services sector contributed 3.8% to growth in 2014, compared to the slower growing manufacturing sector, which contributed 3.0 percentage points. With problems in heavy industry and real estate this is reducing the need for larger stimulus spending. Official figures for GDP growth in 2014 are 7.4%.

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Moody's Investor's Service downgrades China's credit rating to A1 from Aa3. Moody's predicts a slowdown in growth for China. GDP growth for 1st quarter 2017 was 6.9%. Total debt has grown from 149% of gross domestic product in 2008, to 213% in 2013, and is now 253%, according to JP Morgan. The problem is that ever higher levels of credit have supported growth and more of this is coming from the shadow banking sector. Higher levels of debt in future years from the already high levels will weigh heavily on growth, leading to an eventual slowdown in the economy's growth rate.

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Central Huijin, part of China's sovereign wealth fund, China Investment Corporation, bought shares of China's four major banks in October 2011 to prevent steep price declines. China's bank stocks have lost about a third of their value in 2011. The four major banks- China Construction Bank, Agricultural Bank of China, Bank of China, and the Industrial and Commercial Bank of China- control two-thirds of the banking industry in China. In China's interlocking system of relationships between the state, the banks and the state controlled industrial companies, Central Huijin owns 35.4% of Industrial and Commercial Bank, 67.6% of Bank of China, and similiar stakes in the other 2 banks. It was created in 2003 to bail out China's banks after bad loan losses, and was transferred to China Investment Corporation in 2007. As part of the 2007 move bonds were issued by CIC to compensate the central bank. This means the banks pay dividends to CIC so that it can make payments on the bonds. Today the 4 major banks pay half of their earnings in dividends to CIC. CIC chief Lou Jiwei, says Central Huijin needs 300 million renminbi a day, or $47 million to pay interest on the bonds to the central bank. The 4 major banks are also under pressure from China's regulators to increase their capital reserves, because of large bad loans to local governments after the global financial crisis of 2008....