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Banks claims on other banks in China increased for the financial sector from 25% in 2009 to 43% of total loans. The risk is that many of these claims are credit extended to China's shadow banking system which makes loans to property developers and other high risk borrowers. In this situation the non performing loan ratios released by the large Chinese banks and the core capital adequacy ratios are not a good measure for protection from risk in China's banking system and conceal hidden risks. Bank of China's nonperforming loan ratio fell to 0.94% in June from 1% at the end of 2011, and its core capital adequacy ratio moved from 10.08% to 10.15%. Orlik cites China bank analyst at Fitch, Charlene Chu, abut claims on banks having less regulatory risk weighting and thus concealing risk, which makes capital adequacy ratios inadequate to cope with the amount of real risk in the bank's loan portfolio. Just as happened in Spain after decades long boom and sense of safety in the banking system, problems were lying below the surface and the situation can change rapidly. ...

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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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Since 2004 consumer spending's share of the economy in China has fallen from 40% to 35%.

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Local investment companies were allowed to borrow beyond their limits after the financial crisis of 2008. There are about 8000 local investment companies (LIC's) and they were used during 2008-2010 to get funds quickly to projects. The LIC's borrowed for local governments, and borrowed extensively to build roads, railroads, power plants, and other infrastructure and buildings. Northwestern University Professor Shih has followed this carefully, and estimates LIC debt owed to banks at $1.68 trillion, or 34% of China's GDP. Some of the banks have collateral in land, but many banks are relying on the ability of the local governments to pay back the loans. And some of this is in money losing projects.

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A Fitch Ratings report says that an estimated 7.5 trillion yuan of loans have been made by Chinese banks, exceeding the limit that bank regulators had set for 2010 for new local currency lending. In addition another 3 trillion yuan was loaned by using trusts and other mechanisms and this has not been recorded on bank balance sheets. Including this lending taking place in a sort of shadow banking system, the total lending is the same as in 2009 when the heightened stimulus lending ocurred. This explains the inflationary pressures facing the Chinese economy and the growing property bubble.

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De Aenile describes the volatility in stock markets after the Brexit vote. Earnings growth is slow and expectations are declining. Indexes of emerging markets are trading at 10 times earnings, say experts. The S&P 500 ended the quarter at 19 times earnings, compared to historical average of 15, according to this report. Uncertainty remains high in Europe and the U.S., and monetary policy is stuck in a low interest rate environment.

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With China's automobile market declining for the fifth month in a row, and trade tensions rising, it now appears that carmakers such as Ford expanded too quickly in the Chinese market. Ford, Peugeot, and Hyundai appear to have poorly times their expansion in China, expanding at the tail end of the Chinese boom just ahead of the new Trump administration's efforts to challenge China's lopsided trade balance.  It has become so bad that this report shows workers at a Peugeot factory in China spending their days washing floors and attending Communist political study sessions at work. At a Ford plant workers shifts are reduced to a couple of days a month. Sales grew 3% in 2017 and declined 2% in the first 11 months of 2018, after increases of 14% in previous years taking the market to 28 million in a dizzying ride as it surpassed the U.S. sales of 17.5 million. Overcapacity is a problem in China with the aggressive expansion. There is capacity to make 43 million cars, but will produce 29 million in 2018, according to PwC, consulting firm. Ford meanwhile put in a new plant in Harbin in 2017, expanding its capacity to 1.6 million a year, but sales peaked at 1.27 million in 2016, and are down 6% in 2017, and 34% in 2018 to about 700,000. While there are no layoffs some workers are making only $220 monthly, forcing them to take second jobs as cab drivers or couriers. Suzuki decided to quit in 2018 exiting China entirely just so it would not pile up losses in what is now a market that is way overblown from the boom years. Electric vehicle production in the pipeline of about 7.5 million vehicles will compound this problem further with 32 new plants planned by 26 firms.   ...

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Growth in China is supporting growth in other Asian countries. But other Asian countries are still dependent on the economies of Europe and the USA. About 60% of the exports to China by Malaysia, say Malaysian officials, are components for products that are re-exported to the western countries. Domestic demand in China is insufficient to support the high level of growth in China and other Asian countries; in the event demand in Europe and N. America slides back in the face of austerity cuts in 2011, growth across Asia is likely to fall sharply.

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Moody's senior analyst based in Beijing, Yvonne Zhang, says China's National Audit Office's estimate of the banks loans as part of China's total local government debt of 10.7 trillion yuan ($1.65 trillion) is understated. The Audit Office estimated bank loans to be 8.5 trillion yuan. Moody's says this is understated by 3.5 trillion yuan or about $540 billion. Moody's sees the delinquency ratio of these loans between 50 and 75%. With these figures it sees 8-12% of bank loans in China's banking system as non-performing loans.

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There will be continued pressure on the euro which is trading at $1.26 against the dollar. There is renewed pressure from Western European bank's involvement in the economies of Eastern European countries. Austria is most affected with about 50% exposure to Eastern European countries, Italy has about 27% of total bank claims with focus on Poland and Croatia, and the Scandinavian banks are heavily involved in the Baltic countries. The Hungarian forint, the Czech koruna and the Polish zloty are all currencis in steep decline. The IMF has rescue packages for Ukraine and Hungary.

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German leader Angela Merkel's own past in East Gerrmany guides her in her relationship with Russia with ther keen interest in what the then German Democratic Republic lacked, oppposition, press freedoms and independent smaller states in Europe that could manage their own affairs free of foreign pressures.

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China's shift in emphasis from heavy manufacturing and the auto industry to other technologically advanced and less environmentally sensitive industries including new energy sources. The National Development Reform Commisson lists industries in 3 categories- encouraged, allowed, and restricted. The auto industry is now in the allowed or permitted category, and is no longer encouraged for the purposes of foreign investment and the granting of preferential tax or streamlined approval processes. Alternative energy cars, internet equipment and some service industries are moving to the encouraged category. The growth in the auto industry has slowed to about 3% in 2011 from 32% in 2010, with the change hitting the domestic Chinese brands the most. As a result more laws are expected to help technical know-how flow towards Chinese auto companies, according to IHS Automotive.