Open a Healthy Debate!
For once, India has asserted that this country has its own position on global issues that will factor in India’s interests which originate in a battery of country-specific and externally-caused situations. For decades, the compulsions of coalition politics and our dependence on external support in various sectors were being exploited by vested interests. The stance taken on the WTO deal sends out a message that India understands the ‘game’ being played by developed countries under the leadership of US.
 
This is no occasion for celebrating ‘successful stalling of a wrong move’ or lamenting over delay in ‘clinching a deal’ which would have changed the global business environment. So far, developed countries had successfully persuaded the Indian elite to believe that subsidy is a bad word, while they themselves practised ‘subsidy’ by different methods. Daily destruction of unsold stock in Holland’s flower market, destruction of food stock, and issue of food coupons in US, involved element of subsidy.
 
If one looks at the chronology of events up to prime minister Narendra Modi’s assertion that ‘I am more concerned about the small Indian farmer, even though I believe the trade facilitation agreement is good for India…,” the Indian stance on the issue is a timely warning to India’s own policy think-tank and the advocates of ‘globalisation at any cost’. 
 
The position taken is consistent with the advice contained in Indian scriptures which say, “One should lift oneself by one’s own efforts and should not degrade oneself; for one’s own self is one’s friend and one’s own self is one’s enemy”(VI 5, Bhagavadgita).
 
Let us not forget that it was the business interest of a foreign power that kept this country under colonial yoke for centuries. We should not surrender the gains of decades of fighting for our freedom for quick gains. Thanks to the vision of those who took over governance from the British, we have a strong foundation supported by a Constitution which has stood the test of time, a public sector which can shoulder responsibility and institutions, like the judiciary, Election Commission, Reserve Bank of India and CAG, which have withstood external pressures.
 
One wishes, the new government musters enough strength and moral courage to open a healthy debate within the country on rationalisation and transparency in asset accumulation and cross-subsidisation issues which will help India emerge as a global power without compromising the country’s right to stand on her own feet.  
MG Warrier, by email
 

Vanishing listed companies 

Many companies coming to the stock market are vanishing quickly. To stop this menace, government should take appropriate steps about name changes, especially of de-listed companies and vanishing companies. Many unscrupulous companies operating in the stock market are playing with public money.
 
Hence, my suggestion is that through an automatic route, say, SEBI, RoC (registrar of companies), banks/financial institutions, the government should automatically refer the name of companies de-listed, vanished, shell companies and other suspected companies, directly to income-tax department, DRI (directorate of revenue intelligence), finance ministry, RBI, SEBI, various stock exchanges, banks, etc. The list should be prepared on a weekly basis to avoid any financial irregularities. The promoters need close scrutiny and they should be permanently banned from raising funds from the market/ financial institutions/ banks. The main reason is to protect the interest of investors, especially small investors who have invested their lifetime savings in stocks. On the other hand, this will reduce NPA (non-performing assets) of FII/ banks. Promoters/owners should go through proper authentication and identification through various mechanisms like UIDAI, NPR, PAN.
 
The other measures should be to recover the money from promoters, who are defaulters, by making physical inspection of the various assets of their companies, personal assets of promoters, etc. All departments should start investigating the case separately and quickly and inform finance ministry on their whereabouts, present status, assets and liabilities, etc. For the past 20 years, many companies came all of a sudden and vanished quickly from the market, especially under the UPA regime. The public is losing faith in the stock market because of these companies. It is necessary to investigate the various scams and corruption in financial sector, especially money laundering, etc.
Anirudh, by email
 

Excellent Analysis

This is with regard to “Rot at the Top” by Sucheta Dalal. What an excellent analysis and insight expressed in the above piece wherein the columnist has clearly brought out the deep corruption at the top level in our banking and corporate sector! It is, indeed, shocking and scary to say the least.
 
What is the remedy? Can the Narendra Modi government clean up the rot? What future do you foresee?
Cdr KP Jani IN (Retd), by email
 

Dare to be a Pessimist

This is with regard to “Right moves by the RBI to help savers” by Sucheta Dalal. I am afraid, I’m a pessimist and feel that these measures will not get translated to actual assistance to the consumers. Especially, the fifth step—said to be substantially improved in effective redress of grievances to the consumer; I am afraid the RBI, or its redress agency, the Banking Ombudsman, are not yet ready to interpret the provisions of ‘Ombudsman Scheme’ rightly. It simply goes by the words used in the scheme and not the intent, namely, to protect the rights of the consumer. I have the order passed by the dy. governor RBI (in late July). It is simply sticking to the anti-consumer approach on mere technical grounds.
 
There is no need for enacting fresh rules. The crying need is to amend the existing banking ombudsman scheme to be more consumer-centric. It is important to keep a hawk’s eye on any violation of consumer rights or RBI’s regulations by the banks.
Mohan Siroya, online comment
 

Modi’s silence?

This is with regard to “Modi Supporters All Confused?” by Sucheta Dalal. Wonderfully written. The two articles quoted by you were outstanding. The young generation went with Narendra Modi because they thought he had answers to all their problems. They were, of course, aided by the non-performance of UPA. They did not realise that problems faced by UPA may haunt Mr Modi too.
 
However, the entire campaign had raised expectations too high. I believe if Mr Modi can deliver even 25%-30% of what he talked about, he will win a second term. His silence is baffling. BJP slammed Manmohan Singh for silence and now they are paying homage to the old doctor sahib with their silence.
 
Mr Modi tweets about a municipal win in Gujarat but not about more relevant issues is unlikely to be accepted. Prakash Jawadekar was pulled up for wearing jeans and T-shirts on his way to Kenya within 2km from his house by the PMO and told to change into a dress befitting his position.  How did the PMO know this? This is scary in the long run. Are ministers under surveillance from PM? 
 
BJP criticised every Congress policy for the past five years and did not let the parliament function. They had enough time to think about alternates which they don’t seem to have done and the actions are not coming quickly. Or were they not confident that they will win?
 
They still have time on their side; but they must show they are different by actions—which is missing. Making a great speech and practising what one preaches are different things. Secondly, it is hard to believe that babus are working harder now. I think, the top babus always wok hard and keep long hours. It is the babus with whom common people come in contact who are the real problem; whether Mr Modi can make them work is the real issue!
Anil Agashe
  

Popularise the idea!

This is with regard to “Do you know the benefits of a One Person Company?” by SD Israni. I did not expect that ‘ONE IS A COMPANY’ will ever come true. It may take some time for the idea to become popular. Maybe some ‘subsidy’—like the one offered for those joining NPS (New Pension Scheme)—should be considered to popularise it!
MG Warrier

 

User

The RBI's ATM usage rule flies in the face of its own Consumer Charter
RBI Issues Consumer Charter and then comes up with a new rule for ATM use that goes against consumer interests
 
The Reserve Bank of India (RBI) did two things in the last fortnight. It released a well-appreciated 5-point consumer charter (CC), and then, on 14th August, it issued a very anti-consumer directive restricting the free usage of automatic teller machines (ATMs) by customers. In effect, the positive signals sent out by the CC were negated by RBI’s action on ATMs. What is the connection, you may well ask. 
 
Well, for starters, while the CC was discussed with consumer organisations and stakeholders, RBI completely ignored their suggestion that a motherhood statement about how to treat customers makes no sense without consequences for unfair treatment. At the least, this would require a drastic rewriting of the Banking Ombudsman (BO) Act as well as how the BO functions currently. 
 
RBI may even want to consider a separate consumer protection legislation which prescribes a clear process of lodging complaints and their redress with declared penalties. An important part of such legislation would be the conversion of persistent complaints about a bad product or service into a class action, so that all consumers are benefited without the need to file individual complaints. None of our financial regulators takes up decisions on behalf of a class of consumers and, since banks sell insurance and mutual funds, this attitude affects bank customers in multiple ways. 
 
Now, consider how this plays out in connection with RBI’s diktat to restrict free usage of ATMs. Currently, banks have the freedom to decide their charges and interest rates without reference to RBI. So, if some banks found it prudent to curb usage or disallow third-party transactions, they could have gone ahead and done it without RBI’s intervention. So why the RBI directive? To make a anti-consumer action look like a regulatory diktat?
 
The Indian Banks Association (IBA) used its influence on the central bank to ensure that angry customers do not vote with their feet and switch banks. Getting RBI to issue a directive removes the problem. 
 
It also ignores the fact that IBA behaves like a cartel under RBI’s benign watch. That is how all banks act together to charge for mobile texts and debit cards and ensure that interest on savings bank deposits remains a low 4% at all but a couple of new banks. 
 
Now, consider how banks have got RBI to restrict the usage of ATMs by urban consumers. RBI’s press release says, “The policy framework of the Reserve Bank has aimed at fostering the growth of non-cash payments.” Hence, RBI has issued a directive, restricting free ATM transactions from 1st November for urban consumers in six cities on the grounds that “there is a growth in access points and associated infrastructure costs in larger towns and cities.”
 
So, RBI’s way of ‘fostering non cash payments’ is by sanctioning punitive charges and remaining silent about the imposition of ‘convenience charges’ on online bookings by airlines, cinemas and theatre companies. This is completely contrary to the Damodaran Committee’s recommendations to ‘encourage and give incentives’ to customers, to switch to electronic transfers. 
 
But RBI, which has come out with a brand new consumer charter, is clearly not in listening mode. Moneylife Foundation has submitted two memorandums to RBI protesting against its attempts to penalise savers. The first was in February 2013 on its plan to “Disincentivize Cheque Usage” through punitive levies and charges; the second was in January this year against the move to restrict usage. Both have been ignored in favour of bankers’ lobby. 
 
So what exactly happens on 1st November in terms of ATM costs? Under the new rules, you are only entitled to five free ATM transactions at your bank and these would include non-financial transactions to check your balance or ask for a chequebook. 
 
Further, anything beyond three transactions at another bank’s ATM located in six metros (Mumbai, Delhi, Bengaluru, Chennai, Hyderabad and Kolkata) will be charged Rs20 per transaction. Those in smaller towns and holders of no-frills accounts will continue to have five free transactions. 
 
Let us again examine why this action has outraged customers. Customers in metros affected by RBI’s action prefer to use private bank ATMs for several reasons. These are better maintained and have better security and surveillance.
 
Contrary to RBI’s belief that service quality drives the customer’s choice of banks, most often, people are tied to a bank because of salary accounts, scarce lockers, electronic payments for utility bills, credit cards or loans. It is not easy to cut these strings frequently. 
 
As it is, the decision to charge for hitherto free services, like mobile text alerts and higher charges and increase in debit cards fees, has become a source of irritation and discourage multiple bank accounts. Angry and suspicious customers want to know why nationalised banks continue to expand their ATM networks so rapidly if transactions are unviable. 
 
Some banks tell us that it is to extract a fee from small traders and businessmen who tend to use a savings account for their business needs. If this is true, the high ATM charges will only push this segment to switch to cash rather than generate additional revenue.
 
If RBI has done any detailed study or investigation on ATM usage, it has certainly not chosen to share it with us consumers who are affected by its diktat.
 
It is also important to note that RBI did not succumb to pressure from the banking lobby, as long as deputy governor Dr KC Chakrabarty was in charge of customer services. He was on record saying, “It is ridiculous that banks are charging customers for withdrawing money and that too from their own ATMs—it never happens anywhere.”
 
Let us now examine RBI’s move in the context of the recently issued CC. First, it discriminates against urban customers, but because it is RBI’s diktat, the rule does not apply. Also, while the action seeks to impose a cost on the customer, there is no obligation on banks to ensure service quality. The circular makes no mention of it.
 
A reader, Trivendra Sharma, points out that ATMs of nationalised banks are often out of order, sometimes because poor quality machines cause currency to get stuck in the machine. This forces customers to use other bank ATMs. Nagesh Kini, a consumer activist, points out that banks do not necessarily have a 24x7 complaints centre. Also, nationalised bank ATMs often run out of currency during long bank holidays (there are three 4-day holidays this year); there is no obligation on banks to ensure a top-up during this time.
 
Veeresh Malik, a Moneylife columnist and activist, raises other issues. He says all bank ATMs must have a centralised identity number and the facility to call/type out complaints regarding non-functional ATMs or those that have run out of cash. Banks must be penalised for poor service, with specific compensation to the customer.
 
Accessing data until April 2014 from RBI’s website on the total number of ATM transactions and their value, Mr Malik finds that the average transaction size is Rs3,146.85. This again suggests that charging for ATM transactions (beyond five) is aimed at small businesses and not because tiny transactions by account-holders impose a huge cost burden. 
 
Mr Malik also argues that RBI must direct banks to use plain paper to print transaction receipts, not carcinogenic thermal paper that fades quickly. They must ensure zero-incidence of fake Indian currency notes (FICN) in ATMs, with a detection and penalty system in place. 
 
The decision to permit banks to levy charges on ATM transactions is not, in itself, a move that should shatter consumer confidence. But, by choosing to issue a diktat on what should have been a decision by individual a reciprocal service obligation on banks, RBI has ended up signalling that it does not particularly care about the consumer. In that case, the CC will end up being a meaningless piece of paper.
 

User

COMMENTS

Veeresh Malik

3 years ago

It seems that enough people have not actually complained about this issue of charging for ATM usage as yet. In response to my complaint on the PGCell, I received a response by phone from of all people the Hindi Officer of my Bank's Regional Office, telling me that nobody else had complained about ATM usage charges, why did I?

Please, more people need to escalate this issue to the Government of India, and soon.

http://pgportal.gov.in/

REPLY

rs

In Reply to Veeresh Malik 3 years ago

Is it necessary that one and all should complain? Can they suo motto understand and appreciate the grounds under which ATM card issue has emerged???

rs

In Reply to rs 3 years ago

Is it necessary that one and all should complain? Can they not suo motto understand and appreciate the grounds under which ATM card issue has emerged???

Dayananda Kamath k

In Reply to Veeresh Malik 3 years ago

they are statistically proving the 100 percent response. today any reply given by the bank or companies how absurd it may be to your complaint will be accepted by banking ombudsman, sebi, rbi etc and expect you to respond without going through the reply. it is the best way to frustrate the complainant.

sumeet

3 years ago

RBI is now for banks and not for consumer. As per many banks' own internal assesment, a customer visit to a branch cost Rs 100/- to Rs 200 to bank (incl salary etc) vs 15/- to Rs18/- for ATM. In a garb of RBI, all banks want to earn extra fee income. Why the hell are they charging Rs150/- to Rs200/- for debit card, Rs 100/- for account closure (irrespective of vintage), SMS charges, NEFT charges etc.. I think, I am better off keeping the cash at my house and appoint a security guard..It might be a cheaper option :-)

p s deekshitulu

3 years ago

charging of ATM users is not justified. ATM is an extension of Bank Branch which helps the Bank in reducing its transaction cost and customers to have easy access to banking services. when a customer is not charged for using the services of a bank across the counter, then why to charge him when he is using the ATM? At many ATMs, the security aspects are totally lacking. Before allowing the Banks to charge for ATM transactions, RBI should ensure that ATMs are properly maintained by Banks.

Dayananda Kamath k

3 years ago

iba is even above supreme court judgments. many a supreme court judgments regarding service matters are not implemented in banks due to no guidelines from iba by banks. quoting there is no iba guidelines. the day supreme court punish iba for contempt all these things will stop. rbi has failed in every respect as a regulator for banking regarding protecting interest of bank customers. and is helping in every way to loot the client and economy through their dictates.

REPLY

rs

In Reply to Dayananda Kamath k 3 years ago

It is very clear that various moves and statements are made without clear fore thought and later common man is made to suffer.

Priya

3 years ago

It was ridiculous to see Mr. Adithya Puri of HDFC justifying stating that it was like "Toll road" fee.. When did all the roads in the country become "Toll Roads".
Also ATM is not a toll road, alternative of servicing the customer through their branch is more costlier.
Banks have become arrogant and want to ding the customers with all the charges.
Most affected are going to be the ignorant and not so literate customers, students, young professionals living in PG hostels, who also need to withdraw money only when they need and not keep the money hoarded.

REPLY

Dayananda Kamath k

In Reply to Priya 3 years ago

toll road is also looting only. if you are paying toll for the road then why you should pay road tax and and cess etc to the govt. why nhi should collect premium for setting up toll roads. you can not justify a wrong by pointing out another similar wrong.

rs

In Reply to Priya 3 years ago

It may be HDFC way, not concerned about common man and aiming only profits.

Aniruddh Patankar

3 years ago

RBI needs to devise a route by which a customer is forced to use another bank's ATM since his own bank's ATM is "Out-of-Order".

REPLY

rs

In Reply to Aniruddh Patankar 3 years ago

Tats a good idea

R Nandy

3 years ago

The charge might be unacceptable but practically how many people will be affected? .How many householders are actually making more than 5 transactions in a month? Disciplined people will manage with at max 2 transactions in a month.

Sorry to say,the ATM machine is not a replacement for the house Almirah,where we withdraw 200-300 Rs every second day.Certainly the disciplined users of ATMs should not be cross subsidizing the daily users of the machine.

REPLY

rs

In Reply to R Nandy 3 years ago

I personally do draw between 2-5k around 7-8 times a month. I mostly confine to my locality and don't travel much. Just imagine the working force who are always on the move. Certainly all will be having around 1k as their petty cash.

Indus

3 years ago

RBI should be abolished.....they are keeping interest rates high to fleece consumers...

REPLY

Ashok m Rane

In Reply to Indus 3 years ago

RBI is the controlling body for all banks and Monetary Policies. It can not be abolished as that.

Dayananda Kamath k

In Reply to Ashok m Rane 3 years ago

banks have even looted you under the guise of floating rate and prime
rate without your knowledge with active support of rbi. further when they mandate restriction of free atm use. why they can not ask banks to pay monthly compounded interest on deposits as they charge monthly compounded interest on advances. and even though rbi has permitted vide guidelines in this regard banks are not following it. in equity also banks must give monthly compounding for deposits as they charge monthly compounding for advances. here you can see the clear double standards of rbi regarding banks and their clients. do we need such a regulator who abdicates his first duty to protect the interest of clients.

MG Warrier

In Reply to Indus 3 years ago

Indus, my personal request is, please withdraw this demand. RBI is bread and butter for many and the only remaining support for RBI pensioners like me. One Srikrishna (FSLRC) has recommended something close to demolition of RBI and if people like you ask for straight demolition, someone may do exactly that. Then, coming back to your complaint about interest rates, these were deregulated long back and now the impression being created that lending rates are dependent only on RBI’s base rates is just an excuse being developed by government and banks to keep the burden of defence on the broad shoulders of RBI Governor. Let RBI survive. There are some reasons for that institution to survive other than the one I mentioned also. Like currency management, public debt management, regulation of financial sector and so on.

S Bethamangalkar

3 years ago

RBI wants to promote cash transactions over paperless it seems. Instead of promoting competition which is the only way to ensure quality service, we have the usual bureaucratic approach.
IF there is a petition against this move, i am willing to sign it.

Amiit Gupta

3 years ago

Why cant we send a letter to RBI Deputy Director Mr Mundra via moneylife foundation & request him to work on this customer related issue..on the same time moneylife will fix a date on which will send letters to rbi with our issue which we all mentioned in this commennt.

lets complaint together same day to RBI Deputy director , sure then they will wake up with their team.



REPLY

rs

In Reply to Amiit Gupta 3 years ago

Policy makers need to have a considered, firm and constant view on issues and should go by that. But of late, policies at the time of introduction and later undergoes drastic change defeating the very objective. When ATM services are restricted so, why customers should keep their money in the low yielding savings account and struggle when they need it back. By rendering the service in an efficient manner, banks should rope in more and more accounts and win customer confidence. Can anyone boldly say our bank's ATM works 24*7 and all basic services are available through out giving a margin during servicing time.

rs

3 years ago

What if the card issuing bank's ATM/s is non-functional for sometime / a few days in a particular locality (many a time this is felt). Customer has no option but to go to other working ATMs. Who should be penalised for this.. What is RBI's stand on this..?

REPLY

Ramesh B Mhadlekar

In Reply to rs 3 years ago

RBI will never look into your genuine grievances.They are interested only in how to claim perquisites,make arrangements for their jobs after retirement etc.

Radhakrishnan Subbiah

3 years ago

Good, another confirmation that Banks can legitimately enjoy your money at your cost... increasing by day. Is it not time that people think of starting their own banks or some other means of transacting at less cost?. Any thoughts for discussion ?. Certainly banking is the most lucrative business now.. it is worthwhile to think on these lines. If we add up all the charges by the banks , for the diff transactions that we make, it could very well exceed the SB A/c interest. On top of this there is another entity that wants to charge tax on this interest. Can you beat it for the joke of it ?. This is My India !!

mohammed faisal

3 years ago

very nice,
money life foundation
find out point to point and analysis,bank customer problem,

also request to you please raise question about bank pasbook size which should also be unique size pan india for all banks compulsary to print data releated bank trasation and should be front size should be also visible for like retired person and old age,
also face problem releated miss printing in bank pass book like again printing on pre pinted entry and old data also not usful and new data also miss they have no option to reprint from next page optional software as some employee say take statment of account,for see detail which charjable from customer,
mohammed faisal
( financial advisor ) jodhpur

Ashok m Rane

3 years ago

There is no harm in restricting ATM usage at other Banks ATMs. However there is no rationale in restricting ATM transactions on own Bank's ATMs. These restrictions are uncalled for and r not acceptable. It will certainly increase workload at Bank counters and will create inconvenience to customers.RBI should rethink.

REPLY

Dayananda Kamath k

In Reply to Ashok m Rane 3 years ago

then why are they giving licence to white label atms. to create one more agency to loot and payment banks. when you can not manage the existing banks properly why create further category of banks. is it to create a black economy and facilitate its functioning.

Vivek Sanghi

3 years ago

Banks not increasing their ATM population and want to piggy back the growth of other Banks ATM network for free.

So Banks with high population cover for the cost and maintenance and service the customer of the other banks for free.

RBI should mandate ATM population for each bank based on the number of customers with time span to implement and then we have a level playing between banks.

Shocking: Chinese real estate prices are actually falling
Real estate prices fell in 64 of the 70 cities surveyed. This is the largest decline since records began in 2005. This is bad news for the global economy
 
I had written about the problems with Chinese real estate a few months ago. Normally I do not discuss a particular subject more than once a year, but it appears that this problem will only get worse.
 
When I wrote the piece, prices of Chinese real estate were still rising, perhaps at a slower pace than in years past, but rising. This is no longer true. They have now been falling for the past three months. It is not just the third and fourth tier cities that are having problems. They fell in 64 of the 70 cities surveyed. This is the largest proportion of declines since records began in 2005. The fall between June and July was .9%, the fastest decline over the three months. So the fall may be accelerating.
 
Housing sales are also falling. They have fallen 10.5% in this year, this figure too, is accelerating. Sales fell 16.3% in July, down sharply from June. The drop has continued into August. Data from 42 large cities showed a 20 % year on year decrease in home sales in the first 17 days of August.
 
The falling prices are beginning to cause a bit of unrest. There was a protest at the Shanghai offices of the developer Greentown China Holdings. It dropped prices 25% in five days. Naturally the people who had purchased their properties before the price drop were a bit upset. There were also protests in Jinan, south of Beijing, when another developer also cut prices by 25%.
 
Falling prices are rather new phenomena in China. With the exception of a short period in 2012, housing prices have been rising. There has never been any real correction since people were first allowed to own their homes 15 years ago. Prices have increased 500% since 2008 and are some of the most expensive in the world, relative to household income.
Housing is also a major component of the Chinese economy. The construction and real estate industries make up 13% of GDP compared to just 3.2% in the US. If you include cement, steel, chemicals and furniture and other industries that impact real estate, the figure rises to 20% a full one fifth of GDP.
 
The real estate industry is not only a large part of China’s GDP, it is also central to local government revenues. It is estimated that land sales make up 60% of all local government income. Real estate taxes, where they exist, are only experimental programs.
 
There is also plenty of inventory to work through. At the end of 2013 there were 4.863 billion meters of residential housing under construction. If we assume that sales average the same number as between 2009 and 2012, an assumption that may no longer be valid, then it would take 5 years to deplete the inventory assuming no new developments after 2014. Unsold inventory in 14 large cities jumped by 30% since the beginning of 2014.
 
Property developers are trying to deal with the inventory in different ways. One is to hold back property from the market. The number of homes added to the market in July dropped 25% from June. They are slowing construction. New building construction dropped 18.6% in the first 5 months of 2014. They are also adding incentives. These include no down payments and guarantees to buyback properties at the sales price in five years. And as a last resort they cut prices, but in smaller cities these discounts do not increase sales.
 
The slow sales and large inventories have hurt developers' cash flows. Cash and cash equivalents at 137 listed mainland developers, excluding the four largest, were sufficient to cover just 74% of their short term liabilities in the first quarter.
 
Naturally the government is concerned with the present housing slump. They faced a similar slow down in 2011-2012. At that time the solution was to expand credit. The present slump is in part a reaction to the 2013 credit expansion. To slow the markets the government has been slowing credit. Can they reverse course and get the market moving again?
 
Perhaps, but it will be more difficult. China has been expanding credit since 2008. It is now more than 250% bigger than their economy.. While the absolute level of debt is not that high compared to other counties, the US has a ratio of 277%, the speed of the build up is. The US present debt levels haven’t grown that much in the past 5 years. China’s debt has expanded by 150%. Rapid build-up of debt in such a magnitude in such a short period has almost always been followed by financial turmoil in other economies.
The banks are also having trouble finding new money. They have been subject to huge outflows as competition from trust companies and new online banking offer higher interest payments. Their bad loans are rising and they have been forced to sell Rmb 90 billion ($14 billion) worth of bonds to shore up their balance sheets.
 
The other recent source of loans, trust companies, is drying up. Chinese regulators have issued a series of new rules that have slowed their growth. Problems with several trust companies and the increased government scrutiny have made them more cautious. There have been defaults, but these have been followed by bailouts, which may not continue.
 
Even President Xi Jinping’s crackdown on corruption is having a detrimental effect. Government officials make up as much as 20% of the luxury housing market. They used ill gotten gains to invest in real estate. They have stopped buying and are actively selling their houses at discounts of 5% to 10%.
 
To slow the rapid rise of real estate prices many towns had instituted restrictions. Thirty cities have eased these curbs, but it hasn’t helped. Buyers have realized that prices could go down and won’t take the risk.
 
The impact of a Chinese real estate decline will not be limited to China. There is a more direct impact than just the falling demand from a slowing Chinese economy. Asian companies have issued bonds worth $150 billion last year. They had sold $100 billion by last June. Up to half of the issues are from Chinese companies. Thanks to rock bottom interest rates, much of the demand for Asian bonds comes from the US. Chinese developers have also participated in this market. They have sold $50 billion worth since 2010.
 
A slowing Chinese real estate market would not be good news for the world economy. It might become far worse since the world economy already has enough problems. The Eurozone, Japan, Russia, Brazil are either slowing or in recession. The massive amounts of free money that has been swirling around the globe for the past five years have possibly created several asset bubbles, which depending on the country could include equities, bonds, and real estate. The ability of governments, specifically the Chinese government, to stimulate growth with more debt is constrained. Capitalism is a two way street. So despite the promises of central bankers the long awaited recovery might actually be something quite different. 
 
(William Gamble is president of Emerging Market Strategies. An international lawyer and economist, he developed his theories beginning with his first-hand experience and business dealings in the Russia starting in 1993. Mr Gamble holds two graduate law degrees. He was educated at Institute D'Etudes Politique, Trinity College, University of Miami School of Law, and University of Virginia Darden Graduate School of Business Administration. He was a member of the bar in three states, over four different federal courts and speaks four languages.) 

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