Two very interesting news items trickling out of China on Monday that bear watching.
First the macro, which says the Chinese central bank is beginning a long-term refinancing operation to buy up high interest debt.
Chinese banks will buy high-interest bonds — both public and private debt — at near-zero interest money from the central bank and then pledge them as collateral for further zero-interest loans from the central bank.
Yes, LTRO is a precursor to quantitative easing.
This action seems to be an answer to the building bubble in the provinces that has put local governments under a huge debt burden, while Beijing touts all the growth.
The second item plays off of this. Kaisa Group, a Chinese real estate conglomerate has defaulted on $52 million in dollar-denominated debt.
This is a result of dollar strength as well as the slow down in Chinese economy.
Both of these developments bear watching as the China Century theory of huge growth could be overblown.
It’s early but these peeks behind the curtain could turn out to be more.