China Sees Bankruptcies Surge; Bondholders May Get Less Back | Hacker News Reader

China Sees Bankruptcies Surge; Bondholders May Get Less Back

bloomberg.com

68 pointsadventured22 comments

China has a pretty big layer of fictitious economics overlaying their real economy.

So the number of defaults is whatever they want them to be, at least in any particular sector. They can control this with the stroke of a few keys and tweaks of policies concerning lending etc..

As long as the real economy reaps real material gains ... and there are no shocks ... then the fiction can continue relatively unabated.

A lot of empty real estate is just fine in a county where more than 300M people still live in the doldrums, meaning, there's some market clearing availability/viability intrinsic to the situation (i.e. 'somebody' will buy the stuff in a panic, even rational speculators, meaning theirs a 'floor' to any panic in that sector, it's not a black hole)

Now if foreign orders for goods falter, that could definitely be a problem.

A real geopolitical calamity ... or something causing disruption to their new infrastructure projects etc. ... could be a problem.

But sans existential crisis there's no reason to panic there's a lot of room for adjustment.

Something to keep an eye on.

EDIT fyi here are countries with whom China has the biggest deficits, i.e. they buy more than import, granted this would exclude major US imports etc. but gives a hint of who is more dependant on China than otherwise:

Taiwan: -US$110.9 billion (country-specific trade deficit in 2017) South Korea: -$74.7 billion Australia: -$53.1 billion Switzerland: -$29.8 billion Brazil: -$29.4 billion Japan: -$28.1 billion Germany: -$25.7 billion Angola: -$18.1 billion Saudi Arabia: -$13.4 billion Malaysia: -$12 billion

So while fewer Chinese buyers of iPhones might not be good, at least the US gets even cheaper stuff of the tons they already buy.

Whereas the Taiwanese will just be bloodied.

This reads like putting 2010 knowledge about China and Trump propaganda in a shaker and then really go at it for 10 minutes. Dude, get an update. We are in 2018.

Both Western and Chinese "fictitious overlay" to real market is so big that each can lose their current leadership position through that fantasy blowing up. In some regards the trade war is like this party game where you need to step on other people's balloon with your foot that has also a balloon attached.

The good news is, once one of the bubbles burst the other one can be exchanged step by step with real markets that are overtaken from the other.

My comments are valid in 2018, more so than ever.

China has a politically controlled economy, a politically controlled currency, no real or objective accounting standards, a politicized legal system, very high degrees of corruption, capital controls, massive state intervention in financial and other sectors, and a centrally planned economic orientation wherein especially banks take their marching orders from a single source.

So 'dude' , this is a fiction that does not exist even in 'Trump's America'.

American economic figures are open enough that they can be externally validated, and if you 'don't believe them' - you can happily bet against the 'fiction' on the open markets. Yes - the Fed's action does amount to a kind of intervention, but even then we know mostly what they are doing. It's not a fiction, more than it is a calculation.

Oof, that's gonna hurt their social credit score. I wonder if they'll be able to file for Chapter 1984 bankruptcy? =P

In all seriousness, I wonder if China does hit a recession, what the effects will be on the world economy?

The academic effects would be worse than the real effects.

China won't just stop buying stuff from the West, and the stuff they buy isn't quite critical.

You'd see a commodities softening, which would hurt Aussie Canada, but hey, cheap commodities for others is not so bad.

Surely manufactured goods would be cheaper, or won't rise with inflation, again good for Western surpluses.

But the perceived economic shocks would be bad: Wall Street is looking for a reason to sell off right now, given historic highs, ugly multiples, everyone's looking at each other waiting to see who'll hit the panic button first, so some 'big ugly macro news' is enough to stifle things quite substantial. Macro perception is important, much like in 2008 the most important part of the bailouts were not the bailouts, but the signal of the bailouts i.e. implying that 'the Fed + Gov has the back of the US economy' meaning everyone can move forward knowing there will be no domino failure.

By so many accounts China needs to slow down anyhow.

It will be a nice crash. Look at their stock market over the year(s), both HK and Shanghai one. I would bet the recent drop in the US stock market is related to what is going on there.

Related, but the treasury rate hikes played a bigger part than the trade conflict.

It seems like a pretty complicated situation. On one hand, I don’t know how exposed the s&p 500 are to China. If their business is China centered then they’re going to see reduced demand. If their business exploits cheap labor and exports out of China elsewhere then they may see their costs diminish. As a general, econs view any deflationary pressure much more gravely than inflation.

I think it’s probably awful for the world economy. The largest companies of the world trade and operate everywhere and their business may well depend on stability in Chinese demand. That could pull the world into a recession. I’m thinking an international finance/banking company could see its assets severely deflate and thus spread the re-evaluation around the globe.

> In all seriousness, I wonder if China does hit a recession, what the effects will be on the world economy?

I bet it will be quite positive - contract manufacturing becoming big again, new player other than American coming on the scene first time in 2 decades.

They hold the largest reserve of USA dollars.

That's a myth. Most US debt is held by the US public - all foreign holders combined are less than 50%. China is the largest foreign holder, but only holds about 5% of US debt.

https://en.wikipedia.org/wiki/National_debt_of_the_United_St...

Yeah, it’s not a huge percentage of US total debt, so the “China owns the US” hyperbole is a bit overblown.

> so the “China owns the US” hyperbole is a bit overblown.

It is, however, a useful lie to spread for political reasons.

But even if that 5% will be dumped onto markets, the US rate will have to possibly double

tldr section missed another important bullet point. "The new pace may continue: China’s top planning body called on Dec. 4 for local officials to clean up the debt of firms with excess production capacity or insolvent balance sheets by 2020."

I remember not long ago some of those Bonds from Chinese companies with Interest Rate of 13- 17%, and they were in USD. I was thinking that is too good to be true. As it turns out there is a high chances you don't get anything back.

The thing is I don't understand why and how there is a lack of liquidity in China. It all changes within 18 months, from they have too much money and starting buying even more overseas to literally scrambling for cash.

It is not news that you don't get anything back. There is a documentary (forgot the name, but should be googleble) about how China created loads of fake companies to get money from naive investors.

The problem with this whole situation since day one was: How can you be sure that you're not cheated if it's in the other side sovereign's interest when you get cheated.

So yes, there was probably never a point where you could have invested reasonably into Chinese bonds or stocks or startups.

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