Chinese inflation was published overnight and it came lighter than expected at 0.2% YoY. China keeps flirting with deflation as it struggles to find a solution for its real estate crisis. Over the last week, 40 banks have gone under in China, all of them due to a surge in bad loans related to real estate. There are currently 4,561 banks in China, and it is estimated that 3,800 ones, managing 13% of the banking assets ($7.5 Tn) have up to 40% of their assets in troubled loans. Authorities have created the so called “bad banks” to absorb the falling institutions, as more banks are expected to default. Since real estate was a big component of GDP, it’s affecting growth, and the consumer, highly levered and exposed to real estate is looking at the government to come up with a solution. The magnitude of the problem requires time and stimulus money, at a time where the impact of those measures on the currency can be particularly painful.
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