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

[robertson468]

3 hours ago, herfiehandbag said:

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.

China will also be worried about the pre-positioning of Nuclear Submarines in the Straits, which the Chinese will be unable to detect!

[placeholder]

3 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. 
 

Thanks for the cheerleading and not engaging with the huge problem that a real estate collapse would pose for China.

[Phoenix Rising]

7 hours ago, Denim said:

What the CCP needs is a big diversion to give it time to put its house in order.

 

Taiwan will be the diversion.

I'm afraid that is an entirely plausible scenario. If an economic collapse is followed by civil unrest it even becomes likely.

[placnx]

4 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.

 

 

Your quote from S&P Global is not surprising. They have to err on the safe side to avoid embarassment if efforts to salvage Evergrande fail. The highest risk goes to the international bonds since the Chinese government is more concerned about seeing that Evergrande's building projects get completed. Evergrande international bonds are trading at 20 cents on the dollar, but that debt only amounts to $20bn of Evergrande's $300bn+ debt.

 

WSJ just published the latest developments:

https://www.wsj.com/articles/china-evergrande-requests-help-from-government-after-warning-of-new-debt-crunch-11638545951

"Chinese authorities on Friday said they would step in to help China Evergrande Group deal with its crisis, after the highly indebted property giant warned it risked defaulting on a large financial obligation and sought help from its provincial government."

"Evergrande’s precarious financial situation has helped trigger a wider crisis in China’s property sector, with bond prices of many companies dropping to distressed levels and several smaller developers defaulting on their obligations."

 

Besides all the advance payments Evergrande has gotten for uncompleted or not yet started projects, Evergrande has more borrowings in the rather informal domestic debt market. Xi has been trying to control this market, but China is a two-millennium saga of control and evasion (plus hype and dissimulation).

 

It seems that the work out will result in a piecemeal approach in which local governments and other property companies will have to help complete unfinished projects.

 

It's true that the pandemic is the immediate cause of the unwinding of the property market. The model of Evergrande and others was to use deposits paid for new projects to finance the construction of current projects. Once the wheel slowed down and the news got out, buyers cut back even more.

 

This has further ramifications, since China has mimicked Kong Kong by using money from land sales to finance around 30% of local government. Now the People's Bank of China and local governments are trying the find ways to get projects completed since many people have put much of their savings into property as investment. (In the past there were no good alternative investments available, but now the Chinese government is even permitting foreign companies to manage and sell funds in China: https://www.reuters.com/article/china-fidelity-unit-idUSL1N2PD0JR )

So property as an investment may play a lesser role in the future. Local government will have to find other sources of revenue.

 

[placnx]

6 hours ago, ThailandRyan said:

From the article I see that the property market in China is 30% of GDP.  Additionally, it appears that the Property bubble is waiting to pop and that may not just threaten property prices but the world’s economy. The article goes on to say that "This has contributed to already well-grounded fears that the Chinese economy may be sitting on a large property bubble that is just waiting to pop, sending shock waves around the world that will hit Thailand sooner and harder than the crisis of 2008".

 

If it does hit like predicted then the world is in for a major correction and with covid still barking at the doorsteps it could get dicey once again.

It seems like there are a lot of unintended consequences to the 1972 Kissinger/Nixon reelection gambit involving the One-China deal with Mao. Without the US and others pouring vast amounts of money into China's economy, today it would not be a threat to Taiwan, the Earth's climate and environment, the Thai economy, public health, and until lately many manufacturing jobs and livelihoods. Unfortunately Kissinger is too enfeebled to be called before Congress to account.

[placnx]

6 hours ago, Jeffr2 said:

I wonder how different that is from here?  I go by these condo buildings on the sea, built decades ago, and very few lights are on.  Seems some were just bought as places to put money.

There was/is a USD50,000 limit on the amount a Chinese citizen could take/send out of the country per year, so relatives would band together with their quotas to buy a foreign property.

[ourmanflint]

How much Evergrande money is in Thailand? Or is it all mainland China?

[pacovl46]

Well, I guess now is the time to buy gold and silver coins and bars!

[Eric Loh]

52 minutes ago, placeholder said:

Thanks for the cheerleading and not engaging with the huge problem that a real estate collapse would pose for China.

My reasoning is that Beijing created the debt redlines as they saw a bubble building rapidly and seek to intervene to prevent a property crisis like the US in 2008. Beijing seem to have preempt the fall-outs and confident that the real estate financial problems will not affect the wider economy. 
 

There are stark differences in the way the Chinese buy property. Properties are bought on a pay and build agreement. Buyers will bear the brunt of unfulfilled contract. Chinese saved lots more than the west and can absorbed the lose. They normally take 60% loan from banks unlike almost 3-6% down payment in US and bank defaults will therefore be limited. Also Chinese take a longer term view in their properties to recover their investments. 
 

Talk of financial crisis due to Evergrande financial debts started in September. Since then more real estate companies are faced with bond datelines. To date some paid up their bond interests and there no financial signals of distress like the kind that we saw in 2008. 

 

 

[placnx]

4 hours ago, thaibeachlovers said:

Maybe Taiwan will be a test case to see what the west does?

Wasn't Hong Kong the test case for 1 country - 2 systems? The West has not made that much fuss. 1C2S was supposed to be the model for Taiwan reunification, but now it seems that a peaceful union is not a priority. It will have to be a coerced reunion. 

[placnx]

4 hours 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.

 

 

Times have changed, technology, too. So the Taiwan Strait is not the obstacle it once was.

[Denim]

15 minutes ago, placnx said:

Times have changed, technology, too. So the Taiwan Strait is not the obstacle it once was.

Attacking forces will either have to ship troops across it or airlift them over it. Still a hazardous operation given the amount of troops that will be needed.  The build up of troop ships capable of doing this will be seen well before it happens giving Taiwan and allies plenty of time to react. I would not under estimate the value of the Taiwan Straits. Without a secure harbour ,  Too risky IMO

[placnx]

2 hours ago, placeholder said:

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

This link contained in Krugman's op-ed is quite a deep explanation of the property bubble and its implications:

https://www.ineteconomics.org/perspectives/blog/jim-chanos-chinas-leveraged-prosperity-model-is-doomed-and-thats-not-the-worst

[placnx]

2 hours ago, John Drake said:

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.

You're right about foreign debt holders being stiffed, but that's only 20 of Evergrande's $300bn debt.

[placnx]

1 hour ago, robertson468 said:

China will also be worried about the pre-positioning of Nuclear Submarines in the Straits, which the Chinese will be unable to detect!

One would have thought that they have stolen the US underwater sensor technology to detect submarines. Better to position nuclear subs on the other side of Taiwan, and have mobile shore defense to sink landing craft (as proposed for an asymmetric defense).

[connda]

When one focuses a kilometer out, one can no longer perceive their own nose.  Property prices in Thailand are in bubble territory - and the rest of the world too.
But?  Look, look!  Evergrande!

Then I love it. 
 

Quote

China will also be worried about the pre-positioning of Nuclear Submarines in the Straits, which the Chinese will be unable to detect!

The hated and feared commie Chinese and Russia don't perform "Freedom of navigation" drills in Western waters?  But the West is in there with the attitude of "We're gonna fight them over there instead of over here. Freedom Of Navigation! Ohhh-Rahh!" 

But if a Russian or Chinese ships pokes at the boundaries of the West -  "Aggression!!!"

I've lived too long and seen too much, with a significant chunk of my life as a US vet, to buy the b*******.

Who is the aggressor?  Really?

[DividendGuy]

What Thai companies will be exposed if China implodes? Are there any Thai companies that invested heavily into China's real estate sector or in any other sectors that will cause problems here in Thailand?

[ThailandRyan]

2 minutes ago, DividendGuy said:

What Thai companies will be exposed if China implodes? Are there any Thai companies that invested heavily into China's real estate sector or in any other sectors that will cause problems here in Thailand?

I can think of one that invested in vaccines.....

[connda]

6 minutes ago, ThailandRyan said:

I can think of one that invested in vaccines.....

The globalist world is one huge interconnection of economic entities all attempting to make obscene profits even if they sleep with Satan himself.  When those interconnecting structures crumble - it all goes down.  The strongest and most resilient will remain. And then the big powers send there sons and daughters to go take the wealth which will only benefit the richest.  The proletariat and the masses, and the sons and daughters of 'democratic freedom" will die as pawns.  For what?  The propaganda they consumed?  For the benefit of whom? 
The wealthy on both sides directing their citizens to death. 
Wake up.

[Walker88]

6 hours ago, John Drake said:

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.

I see that as most unlikely...that China comes out of this okay.

 

When people had little to no expectations, the CCP could get away with a lot of things. Unfortunately for them, they overestimated their ability to command control an economy, but they succeeded in raising the expectations of the common people.

 

China funneled massive amounts of private savings into money losing SOEs. China also did things like add more steel capacity in the last ten years than existed since Oldavai Gorge, but when there are no more Chinas or Romes or anything to build that requires steel. China has massive overcapacity in a host of things. The country even warehouses ghost cities...which are nothing but examples of once current labor morphing into bad debts. Even in a command controlled, theoretically communist economy, revenue minus costs = P or L, and for many things in China, it's a lot of L.

 

The velocity of money is China is quite high, which means that there are more claims on the same yuan as there are on probably any major currency in any bank deposit system. When things get that crowded, defaults hurt the maximum number of people, all scrambling to get what they believe is their deposit.

 

When China faces an internal crisis, the practice has been to manufacture an external bogeyman. Usually that is Japan, though sometimes it is the US, other times it has been India. In the past that has worked. If the Evergrande collapse cannot be controlled, savers are going to  make runs on banks, as that money velocity thing comes home to roost. In the internet age, when even Chinese can access banned material via a VPN, Tor, Tunnel Bear or some other means, the people will be aware that the problem is not japan's, the US', India's or anyone else' fault except the CCP.

 

China has done many things well, but has done an equal or greater number of things badly. Allowing their entire economic system to be dependent on domestic asset prices was the epitome of a Bubble Economy, no matter the productivity of the workforce. The egos of CCP leadership, as well as corruption, got in the way. All the massive amounts of funding funneled into SOEs was to hide the fact the bureaucrats were ultimately incompetent, as well as corrupt.

[Golden Triangle]

Can someone please tell me what impact any of this will have on an expat with no connection to China ? I have money in a bank here but like most, that is all, what is the risk if any to the normal man/expat in the street ? 

 

Looking forward to hearing from you lot ????

[Anant72]

16 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?

The Thaiger article makes scary reading. Add to that, as you mention, Chinese provocations in the Taiwan straight and concurrent sabre-rattling by Putin at the Russo-Ukrainian border and one gets an ominous picture of things to come. 

[ozimoron]

1 hour ago, Golden Triangle said:

Can someone please tell me what impact any of this will have on an expat with no connection to China ? I have money in a bank here but like most, that is all, what is the risk if any to the normal man/expat in the street ? 

 

Looking forward to hearing from you lot ????

house prices and general inflation, stock market as well.

 

[Meat Pie 47]

16 hours ago, Jeffr2 said:

The Baht dropped big time recently. 

against what currency? 

[spidermike007]

Although there is some truth to this, Thailand is already cursed with a massive economic time bomb. It is the trio of Prayuth, Anutin and Phiphat. These timid goons  have wrecked the economy for years to come! 

[final harbor]

What goes up most come down! Sooner or later. The history shows!

[daveAustin]

13 hours ago, Eric Loh said:

Even now, the unpoppable force is bouncing back with impressive speed from the covid pandemic.

See, it’s bravado tat like that which will have non-Chinese not caring less if it did all go pear shaped. The world is sick and tired of China and its belligerence around the region and world, massive intellectual property theft etc etc. Nothing against ordinary Chinese, but perhaps with some hardship they’ll get off their fat furry and force out that horrible regime. Something which also needs to happen in Thailand. 

[Jeffr2]

5 hours ago, Meat Pie 47 said:

against what currency? 

USD.

[Jeffr2]

https://edition.cnn.com/2021/12/06/business/markets-evergrande-intl-hnk/index.html

Evergrande shares plummet 20% to new record low as default fears resurface

The company, which has about $300 billion in total liabilities, warned late Friday it might not have enough funds to meet its financial obligations. It faces an immediate test of its ability to repay creditors on Monday with the expiry of a 30-day grace period on interest payments on its dollar-denomnated bonds.

 

"In light of the current liquidity status ... there is no guarantee that the group will have sufficient funds to continue to perform its financial obligations," Evergrande said late Friday in a stock exchange filing. The company "plans to actively engage" with offshore creditors on a restructuring plan, it added.

[ThailandRyan]

Here comes the hit people fear

 

https://www.express.co.uk/finance/city/1531946/global-financial-crash-evergrande-bond-repayment-world-finance

 

The company, which is one of the largest in the world, delivered a statement to the Hang Seng stock index, informing the organisation liquidity issues may impact its ability to repay investors. Following this, Dr Marco Metzler, senior analyst for Deutsche Markt Screening Agentur (DMSA), said $23.7billion in international bonds is now at risk.