"I think China's property market is like the Titanic and it will soon hit an iceberg in front of it," said Pan Shiyi at a financial forum last Friday. "After hitting the iceberg, the risks will not only be in the real estate sector. The bigger risk will be in the financial sector."
"In addition to being perennially short of capital – one of the consequences of breakneck lending – Chinese banks are caught in a cycle of self-defeating forbearance. If, for instance, a real estate developer can't meet a scheduled interest payment, chances are that the obliging lender will not write down, let alone write off, the debt. It will rather add the unpaid interest to the outstanding principal. A favorite banker's gambit is to restructure commercial loans as short-term interbank assets, the latter requiring less regulatory capital than the former. An authority with whom [Grant's analyst Evan Lorenz] consulted, and who asks to go unnamed, estimates that between 50-60% of banking assets are annually refinanced or reissued [emphasis added]."