by David Stockman, David Stockman’s Contra Corner:
In the heyday of its incredible credit and construction boom, China was building two world-scale utility plants each week and opening up a new airport every day. Economic fiction writers like Goldman’s Jim O’Neill, chief propagator of the BRICs myth, declared the Red Ponzi to be the very second coming of capitalism.
Now, by contrast, a Chinese billionaire goes missing practically every day, as a recent Washington Post article explained:
That’s what happened last year when China’s richest man — at least on paper — lost half of his wealth in less than half an hour. It turned out that his company Hanergy may well just be Enron with Chinese characteristics: Its stock could only go up as long as it was borrowing money, and it could only borrow money as long as its stock was going up. Those kind of things work until they don’t.
The gentleman in question, Li Hejun, has had quite the financial spill. Exactly 400 days ago in April 2015, according to Forbes, he was worth $32.7 billion. Then on May 20 last year, when the stock of Hanergy Thin Film Power (HTF), in which he had a 81% stake, plunged by 47%, $14 billion of that disappeared in minutes. And since then, all the rest of it has vaporized, as well.
Our purpose here is not to jitterbug on the corpse of another riches-to-rags story from the Red Ponzi. The fact is, Li Hejun and his Hanergy capers is China writ large.
The latter is a incendiary cauldron of financial madness that is destined to have a spectacular demise. And it will take the global economy and the gambling dens of Wall Street, London, Tokyo and the rest down with it.
Yet the punters continue to frolic in the shallow waters of the market’s daily chart-driven undulations, as if oblivious to the Great Red Shark fast approaching. Then again, having missed Fannie Mae, Freddie Mac, Lehman and AIG there is apparently no sign obvious enough to empty the financial beaches in a world of central bank driven Bubble Finance.
Still, consider a little more detail about the Hanergy caper because it represents not an extreme outlier, but the actual central tendency of the Red Ponzi. The Washington Post account summarizes the pure madness as well as can be done whilst keeping a straight face:
…….. the first thing to know about Hanergy is that it’s really two companies. There’s the privately owned parent corporation Hanergy Group, and the publicly traded subsidiary Hanergy Thin Film Power (HTF). The latter, believe it or not, started out as a toymaker, somehow switched over to manufacturing solar panel parts, and was then bought by Hanergy Chairman Li Hejun. And that’s when things really got strange. The majority of HTF’s sales, you see, were to its now-parent company Hanergy — and supposedly at a 50 percent net profit margin! — but it wasn’t actually getting paid, you know, money for them. It was just racking up receivables. Why? Well, the question answers itself. Hanergy must not have had the cash to pay HTF. Its factories were supposed to be putting solar panels together out of the parts it was getting from HTF, but they were barely running — if at all. Hedge-fund manager John Hempton didn’t see anything going on at the one he paid a surprise visit to last year. It’s hard to make money if you’re not making things to sell.
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