Saturday, May 10, 2014

China's SOEs: Leveraged Hedge Funds Making Steel, Ships, Etc. On The Side

This makes perfect sense. SOE profits are collapsing due to huge excess capacity. The lucky ones who still have positive cash flow are making the rational decision to borrow more from banks at subsidized/low rates (6%) and lend to more desperate SOEs at 18%. It will continue, faster and faster until, one day, it stops. 

The latest source of cash for Chinese firms unable to tap banks is loans from other firms.

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