China’s dodgy-debt double act
economist.com
economist.com
Huarong and evergrande are just the tip of the iceberg. If you wish to know what all the things fester below for CCP, here's a very timely summary video from laowhy86, one of the YouTube expert on China https://www.youtube.com/watch?v=RpwtZLzDM_o
Unfortunately you will not find many outspoken Chinese native citizen on YouTube, for they all fear CCP retribution, even living abroad.
恒大暴雷 市值两万亿的中国第一房企 居然对付不出400亿 如同一个万元户 被400块给逼死了 房企都要塌了 房价还没跌 建筑商的商票拖欠 银行的债务拖欠 私人借贷也拖欠 房子卖出去还收的是全款 不知道这些钱都到哪去了 魔幻的时代 魔幻的故事啊
Laowhy provides a compelling narrative, but it also feels like it is just that: a narrative.
China as a country has endured and has at hand many more tools to ensure its stability. It is not a simple dictature or the USSR, which could be brought to its knees via a mix of political and economic ostracism.
The video sadly feels like some feel-good geopolitical video for westerners: "don't worry about China because China worries about itself and hides it, badly".
Just saying something is biased does not make you correct. It is just very elaborate way to say “oh no it isn’t!”.
Laowhy does not offer the research that backs his point besides the general doxa around China. I don't see why I should have to prove a negative.
China has many issues, but the feel-good doomsday rhetoric offered by Laowhy does not help OP's argument especially when channels like Polymatter have covered those issues, better, with less bias and more down-to-earth conclusions.
And, it is not abnormal at all that big company defaults on tens of billion debts. Without digging deep into the issue, I think the company is playing a too-big-to-fail game with the government, by bundling itself with many small investors, it will have more leverage with the government since the government is cracking down on big real estate companies. This is actually not the first time the company use this strategy. The interesting thing now is that is the government going to allow bankruptcy to happen or not.
EDIT: especially the foreigner lives in China spending time with his expats friends, no knowledge of the society, no knowledge of the business at all.. I just started reading Red Roulette, you will know, even you are Chinese, if you are not in the business circle, you don't know business..
Hmmmmmmm. His videos are flashy, watchable... and incredibly poorly researched.
I am incredibly unimpressed by his "I Found The Source of the Coronavirus" video. And frankly it calls into question all his other videos.
"The level of debt is jaw-dropping. The private non-financial sector owed the equivalent of 222% of GDP at the end of 2020. Most of that sits with companies. By comparison, private non-financial debt in America is 164% of GDP."
GDP per capita China :
https://data.worldbank.org/indicator/NY.GDP.PCAP.CD?location...
2010 4550 USD (current)
2020 10500 USD (current)
https://data.worldbank.org/indicator/NY.GDP.PCAP.CD?location...
2010 48466 USD (current)
2020 63543 USD (current) China: 3.875%
ECB and FED: about 0.25%I may be misinterpreting your point though.
So they have about a third more debt than we do? "Jaw-dropping" seems like an overstatement.
China, by comparison is a relatively more fragile economy with much of the growth there coming from manufacturing and real estate , both of which are sectors that are starting to struggle because, either there's pressure to move manufacturing away from external forces or internal force in China are clamping down on real estate speculation to free up the capital allocation crisis there where people would rather put their money on brick and concrete rather than back scientific innovation or commercial enterprise.
In short, the US can print $4-$5 Trillion dollars and get away with it while China simply does not enjoy the same luxury.
https://tradingeconomics.com/china/foreign-exchange-reserves
(And 0.1 trillions in gold reserves FWIW.)
We in the west have a tendency to overestimate China's debt problems by comparing the numbers and ratios to that of the west. Forgetting that 1) China is very big and has a lot of people 2) most people in China are poor and live essentially in a third-world economy that can grow very fast by basic investment in infrastructure such as transportation, housing, energy, education.
That why the patent system is so toxic for the global south its like cutting off the steps on the value chain stair.
Today we have global brands like Xiaomi, Huawei, Tiktok in every corner of the planet.
And there is just going to be more of it.
Export driven growth is also very risky as geopolitical issues (as we can see now with Huawei) can happen on a dime. In order to develop China up to western standards, the world needs to supply resources for a population well over all the western countries (EU+US+CANZUK+Asian Tigers) combined. All of the countries that have achieved had good relationships with their importing trading partners, China on the other hand is moving in the opposite direction due to political reasons.
Instead predicting that it is going to end abruptly tomorrow, the intellectual powers of commentators would be better spent on explaining why it continues and why it has continued for so long.
All of which are beside the point. It is the type of jobs that are available and their relative value. Internal consumption needs to effect a shift in the economy towards services, which isn't happening. Off-shored high-tech manufacturing is moving away to more political acceptable countries.
>Instead predicting that it is going to end abruptly tomorrow, the intellectual powers of commentators would be better spent on explaining why it continues and why it has continued for so long.
Mainly because they created an unequal system with capital controls and ownership rules to siphon foreign capital and IP. This is supercharged by an hyper aggressive business environment and in general large appetite for risk, leading to sky-high asset prices, which is a concern for advanced economies, but much more of a concern for a developing one.
And from what I can gather Chinese EV car brands are now just entering the European markets. The EV car market has pretty much has been a hard reset of the car industry where new players and old player need to duke it out. Its kind of exciting as someone with a Asian background to see so much happening in Asia to the point im planning on using the next 3~5 years to learn to read and listen to spoken Chinese. Just so I don't have to see it all through a western politically and racially biased lens.
Obviously tech is a part of this, but also financial services as well as resource/energy industries. IP is less of an issue than it first seems, it's the ability to execute in a market that is more important.
Is smart money already doing so?
Any other dominos that will fall because of this, and similar plays to take advantage of them?
As a general rule, you shouldn't trade on news like this, unless you understand really well the risks you are taking.
Mike Bird at the WSJ has been going on about this for years as well.
There seem to be a lot of cracks and fraying in China's economy at the moment, and it feels like the sort of thing that could bring on a global economic crisis, if not handled with care.
The US's economic fundementals aren't great. I'm expecting to see US government spending be the majority of GDP in my lifetime. That sort of centralised planning doesn't bode well for the West.
Looks like it already blipped the 50% mark in WW2 and is quite close now. Seems to (visually) be leveling though.
It looks like government spending has stabilized 40 years ago. Considering how much the economy got "worse" from the perspective of the average because China got more powerful since 2000 it's actually strange how the numbers remained stable.
You mean why I felt it was preposterous? Well allow me to demonstrate my naivety...
I would have expected 50% to be "socialist Europe" type spending, and indeed, a bit of googling reveals France is at about 60% of GDP right now, Germany at about 50%, Netherlands at 47%... That 60% of all income is determined by the policies and decision making of politicians, apparatchiks and bureaucrats is, I find, shockingly close to a planned economy.
So why preposterous? Because the US, on so many fronts, positions itself in contrast to Europe - free market ideology, small government rhetoric, fiscally conservative. Anyway, obviously, I was wrong.
The difference in military spending (which might otherwise be a likely suspect) is more like 3.5%ish (US) to 1-2%ish (Europe)
No. Not the whole US. This idea is not in majority. Some people do think so, but they don’t get to control the whole country.
I'm slightly surprised to see that the War On Terror didn't register as a visible discontinuity on the graph, even as a smaller one compared to WW2. I suppose the money would have been spent on the military anyway.
It is in fact possible to evaluate a countries economy in isolation as well as comparatively globally … and America (and the rare EU anecdote) is not the only economy to compare to.
America’s issues don’t alleviate other country’s issues. The Chinese economy, population, and political/legal system are often very different so direct comparisons are usually only partially valuable.
Wanting to compare them isn’t the problem here by itself. It’s how every conversation gets derailed with “but America does x”. They both have their own problems.
The 2008 financial crisis showed that the same is true of Western nations. US and European central banks absorbed trillions in bad debt, and a few banks that officials didn't like walked the plank while the majority came out ahead in the end. The same dynamic is of course 'bold decisive action' when free market capitalists do it, and 'dodgy' when "communists" are engaging in it, at least in the pages of The Economist.
Tether is speculated to be backed by a lot of Everglade ‘commercial paper’ debt.
As fascinating as this would be the only connection the tweeter makes between the two is that Tether bought a lot of CP and Evergrande happens to need a lot of money. Tweeter needs to get off whatever he's smoking
Since then, it seem to have grown from "surreally large" to "absurdreally large"
Go to any big Chinese city. Look around. Every skyscraper around is a mountain of secret debt few times its value.
China is really very close to Sri Lanka in how GDP numbers were financially engineered from massive, but well disguised debts on a nation-state scale
It is been very, very hard to take money out of China for a few months now. A sign of things soon to come, I believe.
"A sign of things soon to come, I believe." it says.
Nah. The debt will be restructured in some backroom deal. Maybe the central bank lending rates will be lowered a bit. And in ten years the GDP per person in China will have doubled again and all those high rise buildings will be full with people.
I envisioned a scenario of some "backroom deal" at a great public expense, and indeed something like that did happen.
It didn't work. Well in a sense, there were giant bailouts, but that only fired up the furnace, and even more "stealth debt" entered the economy.
China has a few thousands more of Evergrandes, and HNAs lined up.
I bet it will never be fixed within the lifetime of regime, even at the expense of its interest in self-preservation.
And it's because Evergrandes, and HNAs are largely CPC's own making — these companies are the biggest sources of income for local governments, and families of high rank communists: defraud lenders, buy overpriced land from local governments, and hide it super duper well, so your mountain of debt turns into asset, seemingly legitely enriching kids of party members on your board.
It's a very strange scheme of state authorised credit fraud on a nation scale.
However I think you underestimate how long time this can be kept up for. China still has many years of out-sized growth ahead of it, and that growth will paint over the bad debt.
It will end at one point, but not now.