more evergrande fallout or something else?
this post was submitted on 05 Feb 2024
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They're trying to authoritarian their way out of a massive speculation bubble.
I don't think it will work, unless you can will away a black hole. Debt is a kind of gravity.
You mean if you can pick up enough speed in the transverse direction you can circle around it and never hit it?
Use the debt’s gravity well to slingshot into the stratosphere!
If they're external creditors, it makes it a lot easier for them to go "nope, not paying that, what are you going to do?" when they're one massive state-backed monolith.
"Give Taiwan nukes", if the Dark Brandon memes are any indication.
Taiwan could develop nukes on their own, if necessary. They had a secret nuclear weapons program until the late 1980s:
https://en.wikipedia.org/wiki/Taiwan_and_weapons_of_mass_destruction
They are in the same club as countries like Japan, South Korea, Germany, Italy, etc. - highly developed nations that are fully capable of developing nuclear weapons, but chose not to (or were forced not to).
I think if they started working towards it, China would feel forced to step up their reunification efforts. If a nuclear deterrent is going to be a viable path back to a stable status quo, it will have to be a fait accompli with external help.
I could imagine a return to what Taiwan had until the early '70s, American tactical nuclear bombs stored on the island, in a similar nuclear sharing arrangement like several European nations that don't have nuclear weapons of their own, but train pilots to drop them.
It would have to be done very carefully and quickly, so that there is no chance for brinkmanship.
Sovereign default is a thing. It’s a short term solution that can get a country out of immediate danger, but has very negative long term effects.
that depends on who the creditors are and how they demand payment. a pound of flesh or a dove feather. evergrande went bust at the same time china became the world biggest auto exporter. i think china participation in the global economy demands new economic theories, considering the promiscuity between the public sector and the "private" sector.
China became one of the world’s largest exporters of electric cars because their domestic market for vehicles has crashed. Now their industry is dumping cars in foreign markets to try and stay solvent.
The US has closed its markets to Chinese cars with high tariffs. That has left the EU as a dumping ground for Chinese high end EVs and the rest of the 3rd world for everything else. This is not sustainable, the EU will eventually block Chinese imports to protect their own industry. The third world can only absorb so much inventory especially with flagging economies.
of course adjustments will be made. but one can't really say that chinese economy is going to crash when no examples of a 1.5 billion people economic power existed before.
and lets not forget that when demand rises for ev's in western economies, considering the production capacity of the chinese market even high tariffs won't make a dent on their exports. the eu is not ready to supply demand of ev's by 2035. unless the state invests directly into car manufacturers just like the chinese gov is doing.
also another thing no one expects is the opening of the 1.5 billion consumer market as a bargaining chip by the chinese gov as a way to consolidate their position on the global market.
imho, the chinese gov has a lot of market solutions they haven't used but that can be activated and negotiated in record time.
edit: just to add their increased car exports are to russia, which is not that good of a consumer market with everything going on there, but it could teach them a lesson on how to corner non western markets. the complexity of the global economy favours the chinese at this point in time. they have more options than the western world.
China has been dangling their consumer market to Western companies for the last 20 years as a way to encourage investment. It hasn’t turned out well for them and many companies are leaving China. Suddenly reopening already “open markets” is not something the West is going to buy. You only get to pull that trick once.
The Demographics in China are also terrible. They are no longer the most populous nation on Earth. They are also the fastest aging due to the effects of the 1 child policy. The problem today isn’t that they aren’t running out of babies, they did that 20years ago. The problem is they are running out of 20 something’s to replace the older generations.
Add this to the issues with debt and the property market implosion and I don’t see China making it through the 2030s without some kind of fundamental government change.
oh we'll buy it. we'll buy it because we are desperate for good consumer markets and china is that. also demographics is way worse in the west.
see this post about raising the retirement age to 71 in the uk. https://slrpnk.net/post/6418235
also demographics is way worse in the west
No. China has a fertility rate of 1.2 right now. That's worse than the West. EU sits at 1.53, USA 1.64. What's worse is that this rate has been low for a very long time due to Mao's One Child Policy.
yeah but our demographics is helped by immigration theirs isn't. they still have that window open to use. we don't.
They won't use it. China is going full-on ethnonationalist right now and is considerably less open to immigration than even in the past.
Exactly. China is extremely unfriendly to immigrants.
being a autocratic state, the party will enact whatever policies it deems necessary. see the one child policy for an example. state propaganda will do what is needed. in fact, a huge class of people without citizenship, some class to be opressed, could even be a boon to maintain the party in power.
like i said before, china has options. the west doesn't. and because china has options they can maneuver better the chaotic future that awaits all of us.
You are operating under the assumption that the party is rational. The grotesquely inept reaction to COVID-19 however has shown that it's anything but. Not to mention, even if the state suddenly decides to reverse decades of Han-supremacy policies, which is extremely unlikely, this does not mean that immigrants will suddenly flock into China in anywhere close to sufficient numbers. I doubt this is even possible, given how huge China still is. Where are these people supposed to come from?
indeed you are correct. i'm giving the party way too much credit. but i do that for every gov in power.
mostly bordering countries, just like the us. laos, cambodia, vietnam would be the origins of said immigrants.
Debt is a kind of gravity.
Uh... no. If you pay attention to history, debt can and is wiped away without repercussion.
Debt is more of a threat, than anything else. If China fails to pay their debts, does the world just stop doing business with China?
The reason why there's so much unpaid debt is because the ruling class has convinced workers to sell themselves out. That's all. It doesn't actually need to be paid just like college loans. The world would in fact be a better place if it wasn't paid. The only people who get screwed are investors with more money than you.
Sure, to some of that - but China's real estate market is simply vast, at one estimate over 50 trillion dollars' worth - and individual wealth in China is heavily tied to RE. If that bubble pops, it's not just the investors who will be up in arms.
Can you provide some examples where debt was waived away without repercussions?
Evergrande was not a triggering event, it was an inevitable consequence. The CCP's fiscal policy has driven "growth at all costs" for over 40 years now and they are running out of free runway. Their "private" sector (a bit of a misnomer considering how government-driven basically every company is over there) acquiesced to these government demands for growth, especially in real estate, long after traditional market fundamentals were saying to slow down, and now those "private" companies are saddled with investments without any way to make money off them post-pandemic. And their markets have realized that before the party did.
The party is only just now waking up to the fact that they can't keep hitting GDP growth targets by pumping stimulus into their businesses and that their economy needs to begin maturing into a more stable form. We will not see a real "collapse" like some doomsday fans love to parrot, but there is a very large correction about to happen to their economic projections, in both GDP and demographics.
"Growth at all costs" is the fiscal policy of the US as well, what's the difference between the US and China in this regard? If it's a matter of government intervention, let's not forget the ridiculous amount of money pumped into the market thanks to actions from the fed. The interest rate has been increased after such a long time of near-zero rates, but there is already begging for rate cuts.
The US has the benefit of being the financial center of the world that a majority of the world uses for trade of goods, debt, and currency. The US economy can "absorb" a lot more growth because much of that growth can be sort of sent overseas even when there is no more "room" in the US economy for it, and when things get unstable, there is a massively larger pool of capital to pull from for capital injections. China has no such deep integration into the global financial situation (yet), as much as they may want to be, and while the CCP has unilateral power to inject capital, they can do significantly less before the market panics.
It also bears mentioning that up until the end of the 1990's, the US economy was not quite so hell-bent on "all costs" growth. Under Clinton was the very last time the federal government had a balanced budget and GDP growth wasn't driven exclusively by deficit spending, and the US economy was effectively "free standing". But ever since Bush started his idiot wars we've been spending ourselves into the hole to maintain growth without doing anything to promote growth naturally.
Remember- government deficit spending is quite literally injecting "free money" into the country's GDP via issued debt to the rest of the world. If you look at the GDP for previous years and compare it to US government deficit spending per year, you'll notice that as time has gone on since 2001, more and more of the gdp "growth" we see has been comprised strictly of government deficit spending.
FY2015: deficit spending $0.44 -> gdp change $0.53T
FY2018: deficit spending $0.78T -> gdp change $0.89T
FY2023: deficit spending $1.7T -> gdp change $1.5T
(Ignoring 2020 as an odd year of course.)
The data above proves that deficit spending is having a diminishing impact on real economic terms in the US. Generally such debt injection has some knock-on effects that cause real gdp increase, but if you look at the FY2023 data the difference between deficit spending to real GDP change goes negative, which indicates the "real" US economy is actually shrinking when compared without the deficit spending creating imaginary demand.
The US has its own correction coming soon too. The federal debt bubble will pop sooner or later, as deficit spending can only last so long before the economy cannot willingly accept more debt. China was just the first to experience such a pop.
All of these economic effects are a natural consequence of a system built on infinite growth inside finite containers, you can't simply will the growth into existence when the supply of energy, materials, and labor demographics all are maturing and wanting to coast into a steady state before finding another avenue of nautral growth.
Thanks for all that information! The point about deficit spending in particular was something I had a vague idea about, but seeing the numbers on spending vs GDP change is very insightful. The US has a huge advantage with its top reserve currency status. I do wonder how isolated the US is from China's problems. It seems like so far it hasn't had much of an impact on the US, but it's hard to imagine failures in the second-largest economy of the world not having some sort of domino effect.
I'm not super well versed on the financial interactions between the US and Cjina, but I imagine the total US change will be a washout. The financial markets will dip for sure since many US based companies do massive amounts of business in China, but a Chinese stagnation will also drop the bottom out of the prices in all of the commodity markets that drive a lot of price inflation in the US. Cheaper US industrial/energy inputs means inflation drops and consumer spending/corporate capex can increase.
That's just a guess though, because China had also been rapidly developing ties to every other country outside of the West-centric financial bubble, and if those countries also see a contraction in Chinese investment, it could snowball a bit.
Will drops in commodity prices show up as deflation or will that just mean greater margins of profits?
If it's a matter of government intervention, let's not forget the ridiculous amount of money pumped into the market thanks to actions from the fed.
It's more of a matter of where the government decided to put its money in the first place. 70% of China's GDP is powered by its real estate market, which eventually lead to an over glut of housing.
You can only cook the books for so long before the whiplash of supply and demand takes effect. They have 50 million extra homes, and are still dumping money into building more. It's not going to be pretty when 70% of your economy catches up with reality.
Government spending is great, it just needs to be spent on things that people actually want/need. Not just pumped into the easiest sector that makes number go up.
70% of China's GDP is powered by its real estate market?! Do you have a source on that? This says it's about 20-30% https://www.axios.com/2023/10/11/chart-chinas-real-estate-struggles
which funnily enough, sounds about what it is for Canada, which I could see also imploding from its over-reliance on real estate.
It could mirror the economic stagnation of Japan that begun in the 1990s. Very similar set of circumstances.
This stagnation had a devastating effect on Japan's standing in the world. If it ends up doing the same damage to China, then there is no chance for the country to become a superpower.
Yeah just make them too big to fail and they can't fail
This is the best summary I could come up with:
Beijing is tackling high-risk financial lenders by enacting a major consolidation wave that will merge hundreds of dealers across the $6.7 trillion sector, Bloomberg reported.
It's a concern Beijing desperately needs to tackle, as mounting domestic debt has applied broad downside pressure on China's economy over the last few years.
At the end of 2022, the bad-loan ratio in the rural cooperative bank system stood at 3.48%, more than double that of China's entire financial sector.
For instance, these smaller cooperatives have been cited as putting profit ahead of their policy duties, such as by offering loans beyond their rural and agricultural areas.
In 2022, four local banks in the Henan province colluded with a stakeholder to attract billions of yuan through online platforms, freezing hundreds of people out of their savings and triggering protests.
But Beijing will have to be mindful of its approach, as its previous merger enforcement didn't necessarily lead to improved bad-loan ratios, Bloomberg noted.
The original article contains 255 words, the summary contains 159 words. Saved 38%. I'm a bot and I'm open source!
I have feeling that's only gonna help those at the top. It'll make the sector easier to control by consolidating it, but if anything goes wrong their gonna fall hard. But I'm no expert in the field.
China rushes to become America while America rushes to become China
It's almost like both nations are just tools to support their ruling classes.
US bails out private corporations left and right but refuses to nationalize them.
China nationalizes industries but ensures profits are maximized for those in control. (there shouldn't even be profit in a national industry; all of it should be re-invested.)
This is why communism vs. capitalism is a stupid debate. Real solutions, to real problems. Let's focus on that.