The hectic battle to save Chinese property behemoth Evergrande from default and collapse continues in Hong Kong where maverick financier Pollyanna Chu has been drafted in to raise funds even as other firms have already defaulted in what appears to be a massive property bubble in China representing at least 70% of the wealth in the communist country. Chinese President Xi Jinping has reacted by galvanising public opinion at home with increasingly strident, nationalistic rhetoric promising a more equal redistribution of wealth by 2035. It comes as evidence increasingly shows a country in the midst of a liquidity crisis that started after the COVID-19 virus emergency in January 2020. This severely undermined China’s credibility in western financial markets leaving property firms and regional banks in trouble. The extent of the problem goes well beyond the $300 billion owed by Evergrande. It also extends to the banking sector in the country. According to McKinsey and Co, China increased its wealth from $9 trillion in 2000 to $120 trillion in 2020, over 33% more than the USA.

 

by Joseph O' Connor

 

As Thailand and the world battle the COVID-19 virus with Omicron knocking on the door, the bigger threat economically for us all may again be coming from China. The scale and nature of what is clearly a huge property and asset bubble in China could trigger an economic disaster in 2022 bigger than the 2008 Financial crisis.  

 

The scale of the property market bubble in China is unprecedented and dwarfs anything seen in western economies over the last century. There is also increasing evidence that the problem extends into the banking industry as well as fears over the nature of the Chinese economy which purports to have increased its wealth by 1,333% since 2000 but where economic data is openly questioned and doubted by many senior western economists. The prospects facing the world economy may not be simply a property bubble bursting but a whole economy that may have been built on unsound or possibly even artificial foundations. The implications for the world are immense, for Thailand even more so.

 

On Tuesday, the Thai Minister of Finance attempted to rally confidence in what has been described as a fragile recovery of the economy in Quarter 4 as the country is still on course for a decidedly lacklustre 2021 with a projected growth rate of 1 to 1.2%, the latter figure quoted by the National Economic and Social Development Council (NESDC).

 

Full story: https://www.thaiexaminer.com/thai-news-foreigners/2021/12/04/china-an-economic-bomb-for-thai-prospsects/

 

-- © Copyright Thai Examiner 2021-12-06

 

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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.

It couldn't happen to a nicer country & it's politics 

This warning has been repeated for years, documentaries supporting it have been filmed as their "ghost cities" have been growing like a cancer. It really is just a matter of when the bomb will go off.

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?

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

 

Taiwan will be the diversion.

22 minutes 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.

So , we have a possibility of potential war between China and Taiwan ( and the US ) coming soon , at the same time China's economical foundations seem to be not solid ( enough ? ) , and a collapse is possible ... The future development of the corona situation is still uncertain ...

Well , anyway , the good news is that one can have a drink again ...

1 hour 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.

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.

 

1 hour ago, HappyExpat57 said:

This warning has been repeated for years, documentaries supporting it have been filmed as their "ghost cities" have been growing like a cancer. It really is just a matter of when the bomb will go off.

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.

 

 

1 hour ago, HappyExpat57 said:

This warning has been repeated for years, documentaries supporting it have been filmed as their "ghost cities" have been growing like a cancer. It really is just a matter of when the bomb will go off.

The fuse is well and truly lit... just a matter of time when it reaches the main explosive...

and it will be a big one.

Lots of worldwide Chinese backed projects are going to be dragged into the mire along with the collapse of China's economy.

1 minute ago, nobodysfriend said:

Well , anyway , the good news is that one can have a drink again ...

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

From the OP - "President Xi Jinping has reacted by galvanising public opinion at home with increasingly strident, nationalistic rhetoric promising a more equal redistribution of wealth by 2035"

 

I seem to remember a guy named Mao saying the same thing

1 hour 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.

And war will be the result.

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.

1 minute 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.

The Baht dropped big time recently. 

1 hour ago, HappyExpat57 said:

This warning has been repeated for years, documentaries supporting it have been filmed as their "ghost cities" have been growing like a cancer. It really is just a matter of when the bomb will go off.

To add to your post:

A tidbit of information for a better comparison 

 

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

ESTATE

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

As usual the news arrives in Thailand a couple of months after it trickled out to the rest of the world ...

3 minutes ago, ThailandRyan said:

To add to your post:

A tidbit of information for a better comparison 

 

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

ESTATE

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

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.

7 minutes 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.

The building goes on by people who daren't put money in the bank lest its source can be tracked.

17 minutes 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.

Possibly, as well as a future investment as an Airbnb, or for rentals to the Chinese zero dollar tours.

China, the monster that never stops giving.

If the Chinese property bubble bursts, the implications rival that of Covid.

 

The CCP, a self-appointed government answerable to no one, has tried to build legitimacy via economic growth. A billion three hundred million folks were dangled the carrot of wealth, and that made them favorably disposed (somewhat) toward the corrupt, self-appointed, self-serving leadership.

 

EVERYTHING is tied to property, and that includes the bank deposits of the 1.3 billion. A wave of property bankruptcies will lead to the evaporation of all of those bank deposits, given the way banking works with money creation that dwarfs even spendthrift governments like the US. When reserve requirements are what they are, a single yuan of bank deposit can become seven yuan with many different people claiming ownership of the same yuan.

 

Dash the expectations of a billion plus folks, and it is conceivable the Cultural Revolution will look like a frat party in comparison.

 

The world would not escape unscathed. First Chinese investment (such as in Thai property or the Road and Belt Initiative) would dry up. Next, a good deal of the world's manufacturing relies on a supply chain that often begins in China (e.g., Apple). Third, China still owns a few trillion dollars of US debt. Dump that and either US rates rise considerably, or else the US decides to default by CUSIP, choosing to not honor bonds held by China. Neither is pretty.

 

Overall world rates could go either way. I can make an argument there would be a 'flight to safety', driving rates down. Just as easily one could make an argument rates will soar, and NO COUNTRY can survive if rates merely return to the historical norm. Since 2008 rates have been close to zero, which has given govts the ability to fund themselves. Consider the US, now with $27 trillion in debt. If the Yield Curve shifted to its historical norm, which is about 500-600 basis points higher, the yearly deficit would add an additional  few $trillion as existing debt matures and was rolled over. (+270 billion for each 1% jump in the Yield Curve).

 

The entire financial system of the world is based on suspended disbelief....and that includes cybercurrency. We all know inherently that what we consider money is just a confidence game where at least one party to a transaction has to believe in fiat or cyber or whatever folks decide is a means of exchange, though all has in inherent value of zero.

 

China gave the world the all purpose curse: "May you live in interesting times". They may show us what that means (which they have already done by giving the world Covid-19). Things could get interesting-er.

They will have to sell the Spratlys and ask for there monies back for the belt and rail/road investments, only last week i read China will soon start seeking payback from many countries, Xi, what goes round comes round.

3 minutes ago, Walker88 said:

If the Chinese property bubble bursts, the implications rival that of Covid.

 

The CCP, a self-appointed government answerable to no one, has tried to build legitimacy via economic growth. A billion three hundred million folks were dangled the carrot of wealth, and that made them favorably disposed (somewhat) toward the corrupt, self-appointed, self-serving leadership.

 

EVERYTHING is tied to property, and that includes the bank deposits of the 1.3 billion. A wave of property bankruptcies will lead to the evaporation of all of those bank deposits, given the way banking works with money creation that dwarfs even spendthrift governments like the US. When reserve requirements are what they are, a single yuan of bank deposit can become seven yuan with many different people claiming ownership of the same yuan.

 

Dash the expectations of a billion plus folks, and it is conceivable the Cultural Revolution will look like a frat party in comparison.

 

The world would not escape unscathed. First Chinese investment (such as in Thai property or the Road and Belt Initiative) would dry up. Next, a good deal of the world's manufacturing relies on a supply chain that often begins in China (e.g., Apple). Third, China still owns a few trillion dollars of US debt. Dump that and either US rates rise considerably, or else the US decides to default by CUSIP, choosing to not honor bonds held by China. Neither is pretty.

 

Overall world rates could go either way. I can make an argument there would be a 'flight to safety', driving rates down. Just as easily one could make an argument rates will soar, and NO COUNTRY can survive if rates merely return to the historical norm. Since 2008 rates have been close to zero, which has given govts the ability to fund themselves. Consider the US, now with $27 trillion in debt. If the Yield Curve shifted to its historical norm, which is about 500-600 basis points higher, the yearly deficit would add an additional  few $trillion as existing debt matures and was rolled over. (+270 billion for each 1% jump in the Yield Curve).

 

The entire financial system of the world is based on suspended disbelief....and that includes cybercurrency. We all know inherently that what we consider money is just a confidence game where at least one party to a transaction has to believe in fiat or cyber or whatever folks decide is a means of exchange, though all has in inherent value of zero.

 

China gave the world the all purpose curse: "May you live in interesting times". They may show us what that means (which they have already done by giving the world Covid-19). Things could get interesting-er.

Good post thankyou

3 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 same as what Putin is doing to Ukraine 

1 hour 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.

 

Agreed.  But I suspect it won't be a conventional war. 

 

A few thousand or even a few hundred SAS type troops could land relatively covertly and quickly remove (eradicate) a large portion of the political infrastructure in a very short timeframe.

 

Knowing their heads are on the block, the remaining power base will be only too willing to negotiate a swift surrender.  Politicians invariably and uniformly value their own life far more than their ideals. 

 

I bet more than just a few of them have their Leah's on a slow idle 24/7 right now and those that aren't neutralized and have time to escape will do so.

 

It will happen so fast the West won't have time to mobilize and the US and UK will be only too happy to announce the event as a China "domestic issue", largely because the global economic risk to losing the source of chips would be too devastating.

8 minutes ago, ozimoron said:

"The conspiracy theories that China created coronavirus and deliberately released it to the world are toxic and just plain wrong. All this China bashing is just creating a situation where the sheeple develop a mindset predisposed to a war with China, just like 1938 in Europe."

Where is this OP China Bashing, I see one poster, but the rest of the posts therein are not.  Think you need to read some of the posts, and not make rash statements such as what you posted because of one post, because it is not very proper. Calling people Sheeple is also disrespectful.

Remind me again which country the Thai media was proudly trumpeting (in their ususal subtle way, as in who needs half-broke farangs and their miserable dollars or euros?) is by far the largest purchaser of condos in Thailand, with something like four times as many sold to them as to the nearest nationality? And what could possibly go wrong, lol?

4 minutes ago, ozimoron said:

The conspiracy theories that China created coronavirus and deliberately released it to the world are toxic and just plain wrong. All this China bashing is just creating a situation where the sheeple develop a mindset predisposed to a war with China, just like 1938 in Europe.

I agree . Sure not everything in China is fine , like human rights, to name 1 , but many of the news is deliberate rumor spreading creating hate . Same goes for Russia . In Western news ( read US , since all the western world gives only news from that side) you only get fear and hate messages . The Western world ( again read US) is in decline and world power is shifting to the East . This movement is a big economic shift , and has happened before . 1000 y ago China was also the big power , after it switched to Europe , and after that to USA .

Like i said , surely not all is fine, surely not , but do take some critical view with you and try to read news from several sources , and not only from your side of the ocean/fence/... . 

1 minute ago, sezze said:

The Western world ( again read US) is in decline and world power is shifting to the East .

I disagree,

As far as I can see the whole of our current civilisation is in decline.

China appears to be in as much trouble as anywhere else.