China could be an economic time bomb sitting on Thailand’s doorstep as Evergrande collapse nears

[herfiehandbag]

2 minutes ago, Denim said:

I agree.  If Taiwans friends stand firm in their resolve to assist in event of Chinese aggression then I don't think even the CCP will be stupid or desperate enough to make an all out invasion.  Too risky. 

 

However , it can still serve as a useful distraction by more of the same bellicose behavior we have recently seen , keeping up the pressure without resorting to open conflict.

 

If there were a land border connecting the two then that would be completely different. As it is , the Taiwan Straight is the islands greatest defense , as was the English Channel to the UK in 1940.

 

 

They will need to take a port right from the start - modern high intensity warfare uses an awful lot of supplies very quickly; assault troops can be landed over open beaches if you can get to the beaches and suppress the defences, the logistical tail not so. I am sure that Taiwan has measures to very quickly put the ports facing China out of action.

 

The amphibious problems from 1940 and 1944 are there - plus the Straits of Taiwan are a lot wider, and more open to interdiction.

[Mr Meeseeks]

24 minutes ago, DefaultName said:

Historically, one thing that always stimulates an economy is a war.  Let's hope he doesn't decide on that.

They can maybe project their power to Taiwan but not any further, they simply won't win an extended conflict overseas because their power is concentrated within China itself. 

 

They are attempting to follow the US in terms of global projection but they are still years behind.

[Walker88]

34 minutes ago, placeholder said:

China holds about 1.06 trillion dollars in US treasury bonds. That's about 4% of the total debt. Not a serious threat.

Actually it is more. Beginning in about 2010 China began using proxies and offshore entities to mask their purchasing. Yes, they have sold down somewhat to fund their Belt & Road Initiative, but the combined direct ownership, proxy ownership, and private Chinese citizen ownership remains fairly substantial.

 

In any event, prices are set on the margin. Even a 4% sale---using the official figures---would create a buyer's strike and at least a short term spike in rates. Perhaps the Fed could conjure another $trillion to absorb sales, but otherwise there isn't such a sizable pool of uncommitted funds sitting in a box somewhere that could take up what China might be forced to sell, hence 'prices are set on the margin'.

 

In the bigger picture view, I always wonder how many hits sovereign debt and fiat currency can take before we stop suspending our disbelief that any government is ever going to repay or that any sort of transaction save for direct barter is a confidence game we all practice so as not to have to slaughter each other for food. I hope we agree to keep believing in ether.

 

This is an aside, but consider how the EU 'solved' the 2008 crisis.  It was faced with two problems:  bad debts and high rates for sovereigns. It created what I call a Tautological Solution:  it printed money, gave it to banks, and told them to load up on EU sovereign debt. That drove rates way down and allowed EU govts to fund their deficits (In Spain rates fell 700 basis points, for example). The banks also then had 'gains' which they could run through P&L and into capital reserves, thereby lowering the leverage ratio. It worked because the world NEEDED to believe in it.  The US took a slightly different approach and forced banks to reduce leverage and issue new equity. That was slightly less smoke and mirrors than what Dragi and the ECB did.

 

One more aside....ALL of these problems stem from a single thing: the loss of pricing power for labor and the various solutions societies created to try to appease the masses who are, in effect, redundant. Jobs did move to low labor cost places, but those are merely way stations on the road to oblivion, as technology will obviate them. Tech is also moving up the labor skill chain, so it isn't just the unskilled who will be made redundant.

[ourdon]

2 hours ago, Jeffr2 said:

The Baht dropped big time recently. 

Haven't really seen any relief very recently.  A few months back the CAD/BHT pair went from 25 to 27 baht per dollar but the rate has restabilized in the low 25's since.  Don't know how the other pairs have fared.

[ozimoron]

6 minutes ago, ourdon said:

Haven't really seen any relief very recently.  A few months back the CAD/BHT pair went from 25 to 27 baht per dollar but the rate has restabilized in the low 25's since.  Don't know how the other pairs have fared.

AUD THB is much the same as it was 2 years ago.

[Walker88]

16 minutes ago, BE88 said:

USD 3.218 trillion in October of 2021  will be enough to pay the debts of China.

 

https://tradingeconomics.com/china/foreign-exchange-reserves

FX Reserves are a funny thing. It isn't just some box of money currently unused and looking for a place to go. Generally it is already committed to something, so removing it can affect some or other market.  The notional number is false comfort.

[Henryford]

3 hours ago, jacko45k said:

Yes, people can get a glass of wine with their meal in Thailand now..... pass the party pipes round.

Went for a meal in a large restaurant in Pattaya last night. No drinks allowed, they haven't got their "papers" yet !!

[thaibeachlovers]

15 minutes ago, Walker88 said:

One more aside....ALL of these problems stem from a single thing: the loss of pricing power for labor and the various solutions societies created to try to appease the masses who are, in effect, redundant. Jobs did move to low labor cost places, but those are merely way stations on the road to oblivion, as technology will obviate them. Tech is also moving up the labor skill chain, so it isn't just the unskilled who will be made redundant.

Indeed. Given the apparent lack of any government action on such, one wonders if they have a plan B up the sleeve, or are being willfully blind to the problem and hoping it happens after someone else has the job.

[rupert the bear]

6 hours ago, placeholder said:

One of big reasons fueling this looming disaster is the fact that China provides very little in the way of security for its seniors. So they have a very high savings rate which means that they have to put their money somewhere. If China had instituted a decent social security system in the early days of its growth, that growth would have been slower but more sustainable. It's citizens would have spent more on consumption and invested less which would have resulted in a more balanced and sustainable economy.

Also, the Chinese govt has forced the private sector to invest or lend  money to losing state banks and industries. Xi's bizarre version of socialsim- support state banks and industries but starve funding for social programs - are driving China towards a major financial disaster. Unless things radically change, China seems destined to be a perpetual middle income nation.

hi sir,i agree with your summary and this insane measure to try to re jig the wealth spread is just that,as u say chinese buy property to save.you screw this your gonna have serious problems as deng said the deals this'i shall allow to become gloriously rich' xi better keep his end up

 

[toofarnorth]

3 hours ago, jacko45k said:

Yes, people can get a glass of wine with their meal in Thailand now..... pass the party pipes round.

I'll drink to that !

[Cake Monster]

3 hours ago, Jeffr2 said:

True.  But if this does happen, it could be a really big deal.  We've been worried about this for a long time. 

 

Another interesting article:

https://www.spglobal.com/ratings/en/research/articles/211118-credit-faq-why-china-property-firms-are-succumbing-to-evergrande-effects-12186726

Investors are keen to understand what will happen next in this fast-moving situation. Their outlook is unusually negative--in a poll we conducted, 91% said they expected more China developer defaults over the next six to 12 months (see chart 1). Their concerns are largely about controlling their exposure to China property debt, and then how their risks might spread to other industries and investments.

 

We still believe an Evergrande default is highly likely. While the issuer has managed to cover recent coupon payments, the bigger test will be in March and April 2022, when it will have to make a much larger (US$3.5 billion) repayment of principal for its public U.S.-dollar senior notes.

 

 

WADR

The Evergrande " Meltdown " is just the very tip of a huge Iceberg.

Many other Property Developers are also struggling to finance their Debt loads, and now the problem seems to be moving to other sectors of the Chinese Economy, with some large Tyre Manufacturers going to Wall

[sscc]

Evangrande and China property market issue to cause economic disaster in 2022 bigger than the 2008 Financial crisis  ?     I don't think so.    

 

Evangrande and China property market issue to cause Thailand financial and economic problem ?

I don't think so either. 

 

 

Edited December 8, 2021 by metisdead
Bold font removed.

[rupert the bear]

4 hours ago, worldexpress said:

China's golden age had reached its peak around the time of the Olympics and it's been all downhills since, credit to, in part, their carelessness in introducing the corona virus to the world. CCP is well aware of the bubble and its inevitable pop. Their nervousness about its impact can be seen through their sharp escalation in threats to Taiwan. They are looking to rechannel the domestic public outcry and dissent that will follow to a national war rally. That's a classic proven go-to play in the authoritarian playbook. With the Russians helping distract the US, the timing may be right, though the window may be small.  Their decline may be just as rapid as their rise and the time is ticking. How determined is Xi to put himself in history books as the modern day national hero that finally achieves the grand territorial goals?

interesting anylisis ,i too look at the situation with trepidation having lived a lot of my life in hk and taiwan.this re distribution of wealth idea by xi is madness,chinese save by buying real estate as ve noted.bury that and all hell breaks loose.as u say the nationalists could funnel dissent into a foreign war and taiwan is the target but they still dont have the capeability to pull it off,mess up taiwan for sure.japan and usa plus a few others have shown up to support taiwan but hopefully xi will fall before we get that far.

[Eric Loh]

Many economist described China as the bubble that never pop. I guessed it is due to China’s crisis proof economic momentum which has survived countless predictions of collapse. Even now, the unpoppable force is bouncing back with impressive speed from the covid pandemic. That said, China is suffering from an identity problem and status worthy of their wealth. 
 

[ozimoron]

On 12/6/2021 at 11:16 AM, sscc said:

Evangrande and China property market issue to cause economic disaster in 2022 bigger than the 2008 Financial crisis  ?     I don't think so.    

 

Evangrande and China property market issue to cause Thailand financial and economic problem ?

I don't think so either. 

 

 

but unwilling to post reasons for your skepticism?

[tingtongfarang]

 

[tingtongfarang]

 

[Globaleyes]

1 hour ago, placeholder said:

Thanks for the empty generalizations. China has very serious, debilitating structural defects much of it due to mismanagement by Xi. He has increasingly compelled the private sector to support moriibund state industries and state banks.

 

He allows local governments to artificially stimulate the economy by creating ghost cities and other unnecessary infrastucture.  They do this because the central govt requires them to spend funds to increase the GDP. If their GDP doesn't rise, the government penalizes them.

The size of state owned industries has actually increased relative to private industries which are the dynamic part of the economy.

Because education is so underfunded in China parents have to spend a huge part of their incomes on tutoring for their children. They can't afford to raise more than one child. China is facing a huge drop in its working age population as older workers retire and there aren't enough workers to replace them.

It seems more likely that China will end up in what's called a middle income trap. With the heavy hand of government suppressing competition from the private sector.

As for Russia...you've got to be kidding...

Pretty much it., though I'd stress more their demographic situation, which truly is dire, including a serious gender imbalance, and an 'official' birth rate of 1.6.  Add in a huge public debt, to be financed by ever fewer workers, and the burden of one child supporting two parents in retirement (that's happening right now....),  and I cannot see any way that China will avoid at least several decades of actual decline. 

[IAMHERE]

Scary thought, China losing control of its nuclear arsenal. 

[itsari]

7 hours ago, placeholder said:

One of big reasons fueling this looming disaster is the fact that China provides very little in the way of security for its seniors. So they have a very high savings rate which means that they have to put their money somewhere. If China had instituted a decent social security system in the early days of its growth, that growth would have been slower but more sustainable. It's citizens would have spent more on consumption and invested less which would have resulted in a more balanced and sustainable economy.

Also, the Chinese govt has forced the private sector to invest or lend  money to losing state banks and industries. Xi's bizarre version of socialsim- support state banks and industries but starve funding for social programs - are driving China towards a major financial disaster. Unless things radically change, China seems destined to be a perpetual middle income nation.

Pension funds have to put there money somewhere too . Not any sense or substance in your reasoning about Chinese citizens placing there savings .

 

 

[placnx]

3 hours ago, herfiehandbag said:

Success in invading Taiwan is by no means a given. An amphibious invasion against a well prepared and well armed enemy is a very difficult operation. If it fails it will leave the Chinese regime economically and militarily bust.

A real desperate throw of the dice.

 

It's certainly worrying for Taiwan and the world. Xi is a gambler, and Taiwan isn't ready to defend itself. It has downgraded military training of its citizens and the army has not really developed an asymmetrical defense yet. 

https://www.aljazeera.com/news/2021/11/23/taiwan-revamps-military-amid-china-pressure (see more links at bottom of this link)

https://warontherocks.com/2021/11/taiwans-defense-plans-are-going-off-the-rails/

It will take several years for advanced semiconductor production to come on stream in the US, Japan, and EU. If China took over Taiwan in the next few years, due to the concentration of high-end semiconductor production in Taiwan, Xi could hold the world to ransom.

[placeholder]

2 minutes ago, itsari said:

Pension funds have to put there money somewhere too . Not any sense or substance in your reasoning about Chinese citizens placing there savings .

What pension funds would those be? Private pension funds in China don't amount to much:

 

Ageing China boosts private sector role as pensions time bomb ticks

https://www.reuters.com/world/china/ageing-china-boosts-private-sector-role-pensions-time-bomb-ticks-2021-05-20/

 

And Chinese private citizens are heavily and directly invested the housing market:

China stores 70% of its wealth in real estate. Now, the property crisis is forcing investors to reconsider their favorite means of savings

https://fortune.com/2021/12/02/chinese-real-estate-investing-home-ownership-evergrande/

 

Not any sense or substance in your reasoning about Chinese citizens placing their savings .

[placeholder]

2 hours ago, gearbox said:

Xi is a smart cookie and what he is actually doing is channeling resources into areas which give long term competitive advantage. Residential real estate and online gaming are areas which waste resources and do not provide any competitive advantage.  The Chinese are focusing on areas requiring hard science, where it takes long time to build expertise,  but once mastered it takes long time for any competitors to catch up.

And the latest trade data confirms he is on the right track, record trade surpluses and exports, record currency reserves, and 60% of exports are machinery and electronics, only 18% are now labor intensive like producing t-shirts. From these 60% machinery and electronics exports an ever increasing share is produced by the Chinese multinationals with their own IP.

 

Compare that to some western countries with huge service based economy, and you can understand why Xi is saying "time is on our side".

 

 

Please.  China has essentially been subsidizing it's economy via a huge housing bubble But as China's growth rate slows, that's just not going to work anymore.  Because Chinese citizen save at such a high rate China has to devote more than 40% of its GDP to capital formation to maintain employment. That's an extraordinarily high and inefficient percentage.

https://data.worldbank.org/indicator/NE.GDI.TOTL.ZS?locations=CN

Also, it's working age population, which looks like that of fully developed nations, is already shrinking. 

https://fred.stlouisfed.org/series/SPPOP1564TOZSCHN

 

Now china's heavy investment may work when the economy is growing the way it used to. But it's not growing nearly as fast anymore. So far the Chinese leadership doesn't seem to understand that it can't go on encouraging the kind of overbuilding that had been, at least on the surface, so successful.

The only good news out of all this is that China is not deeply integrated into the world financial system. So if there is a crash, it won't be nearly as disruptive to the rest of the world as the 2008-2010 crash was.

And finally, many thanks to Paul Krugman whose thoughts on the issue I liberally stole. Here's a link to the original column for those who subscribe to the NY Times or know a legitimate way to get past is paywall.

https://www.nytimes.com/2021/10/22/opinion/china-bubble-economy.html

[connda]

5 hours ago, herfiehandbag said:

Success in invading Taiwan is by no means a given. An amphibious invasion against a well prepared and well armed enemy is a very difficult operation. If it fails it will leave the Chinese regime economically and militarily bust.

A real desperate throw of the dice.

 

When it happens, I wonder how many farangs will be falling over themselves to get seats on planes exiting Thailand.
Given the extreme levels of anti-Chinese sentiment on this forum, my guess is that most will.

[BE88]

2 hours ago, Walker88 said:

FX Reserves are a funny thing. It isn't just some box of money currently unused and looking for a place to go. Generally it is already committed to something, so removing it can affect some or other market.  The notional number is false comfort.

In US Treasury Bills, therefore easy to use if the US is not yet bankrupt, this is the problem !

[connda]

Whence goes China, thus goes the world.

The globalists wanted an highly interconnected, 'just-in-time' economic model.  Now they have one.  And when the bottom card is removed, the entire house of cards will come down.

[John Drake]

3 hours ago, ozimoron said:

I wasn't referring to the OP. It should be obvious from the sheer number of BM's who took the opportunity toi engage in some China bashing, including spreading conspiracy theories. They deserve worse than to be called sheeple which is a term most often bandied about by the far right.

It's amazing, isn't it. Many, many of the same people who have been posing as Covid experts for the past year, have suddenly revealed themselves to be China specialists, too. 

[placeholder]

3 minutes ago, John Drake said:

It's amazing, isn't it. Many, many of the same people who have been posing as Covid experts for the past year, have suddenly revealed themselves to be China specialists, too. 

And those who have remained obdurately and proudly ignorant, demonstrate that they haven't changed course.

[jacko45k]

2 hours ago, Henryford said:

Went for a meal in a large restaurant in Pattaya last night. No drinks allowed, they haven't got their "papers" yet !!

I was at my usual place... no problem... hasn't been one ever.

[John Drake]

2 hours ago, Eric Loh said:

Many economist described China as the bubble that never pop. I guessed it is due to China’s crisis proof economic momentum which has survived countless predictions of collapse. Even now, the unpoppable force is bouncing back with impressive speed from the covid pandemic. That said, China is suffering from an identity problem and status worthy of their wealth. 
 

What I think you see on this forum whenever China is mentioned is a Pavlovian revenge fantasy. Some Westerners cannot come to grips with the fact that they are no longer Bwana, that they don't have automatic deference paid to them simply because of the country of their origin. So when they see an article like this, it gets their hopes up. My own experience with Chinese people, mainly teachers and academics at Chinese universities, is they are loyal to their country. To use a word that will really cause consternation on these boards: they are patriotic. Otherwise, they have same hopes and wishes for their families and career as people elsewhere in the world. The ones in their late 40s and early 50s will tell you that China has traveled an enormous distance during their lifetime, economically and socially. I'm no expert at all, but if I had a prediction to make about all this Evergrande/Chinese debt it's that they will maintain internal debt payments and stiff the foreign debt holders. China, as we've seen with Covid, is able to maintain internal self sufficiency. I wouldn't be surprised to see this play out just like Covid, with the Chinese the last ones standing.

Edited December 6, 2021 by John Drake