China’s Economy Is Slowing Which Could Have Big Consequences for the World.
Financial sector,” sent shockwaves through the business community with an article saying that the historic mission of private enterprise had achieved all of its goals in china and that communist ideology would be coming back in full force – the era of private enterprise was over. the article was so widely shared and
Caused such consternation that the communist party spoke out to calm the nerves of the business community – there was nothing for people to worry about. president xi’s administration launched a series of campaigns targeting different the business and cultural landscape in china. the government targeted the
Fintech industry, private tuition and entertainment as well culture, gaming and effeminate fashion trends. animated character winnie the pooh – i dunno, the severity of the action taken by beijing against private companies surprised people both in china and abroad, and while these attacks on private enterprise
Were harming the economy, the real damage was yet to come. the three red line policy in august 2020 essentially sucked all of the air out of the room for chinas property developers. this was a big deal as china’s property sector is estimated to make up almost a third of the country’s total economic output.
Fantasia holdings and modern land china have since defaulted on their debt, and the property market has ground to a halt over the last few months. the problem is bigger than that though, raised about a third of their total revenues from selling land leases to property developers. that revenue source evaporated in autumn
2021. problem of excessive leverage and real estate malinvestment in china, and this had been building for fifteen to twenty years. my friend hugh hendry empty housing units in china right now and 93 million new homes under construction. actual housing demand is estimated to be 7 million new units per year. that
Is a lot of excess inventory building up. something did have to be done about the excesses in the real estate sector, but you have to question if the brakes had to be slammed on that hard, and if it makes sense to hammer other sectors of the economy at the same time? the government actions erased billions of dollars
Of value for both domestic and foreign investors. some of the country’s largest employers, local governments, and corporate contributors to economic growth. the crackdowns left investors and chinese businesspeople wondering if it made any sense to invest in china at all going forward? so why did this have to happen
Right now? well, chinese officials insist that all is going to plan. in april 2021, the party’s politburo said china’s strong rebound from the pandemic had presented a “window of opportunity” to tackle critical structural challenges in the country. track to exceed the government’s full-year they
Argue that this crackdown is a necessary that could blow up if not addressed immediately and that these steps are needed to eradicate there is something to be said for some of these is right now amongst the worst in the world. to purchase an apartment. that compares to thirteen years in london and eight in
New york cities that are not famed for their affordability. is for living in and not speculation. and he china’s trade surplus reached its it was 26 per cent higher than the cent higher. china’s manufacturing industry benefited from a shift around the world from people spending money on services to buying
Tangible goods over the course of the pandemic. in early 2020 at the start of the pandemic, but chinese exports of goods quickly took off once domestic cases of the virus fell and lockdowns it doesn’t make sense to kick the can down the in china, and it possibly makes sense to but it is not clear that a lot of
Planning went into implementing the three red lines policy. were entirely unprepared for the repercussions. is likely to be further emphasized over time. of the approximately 600m chinese “have-nots”, while dual circulation entails a shift toward goods from abroad – an attempt to achieve in an online speech
To the world economic forum’s annual meeting, president xi struck a pro-growth tone in his defense of the common prosperity desire is not egalitarianism. we will first make the pie bigger and then divide it properly through reasonable institutional arrangements. will get a fair share from development,
People in a more substantial and equitable way.” have done much to grow the pie as he described, and i struggle to imagine how any of them would. so, china is still growing, but it is growing less than before. by most international standards, in the fourth quarter of last year was a great performance. but while it
Was above most analysts’ predictions, it was the slowest pace of expansion for 18 months — a slide from 6.5 per cent growth during the same period in 2020. economic consequences of his common prosperity campaign are beginning to spiral out of control. number 1. the crackdowns on businesses like in the tech sector and
Education sector. number two, the collapse of the property market. and number three, china’s “zero covid” strategy which goes far beyond social distancing and wearing masks. it involves people being confined to their homes, closed roads, suspended transportation services and it has left citizens short of food and
Other canada… china appears to be taking this action economic growth for international prestige. china’s slowdown is, to a certain extent, affecting these three key areas as they appear to reflect a strongly-held official conviction. are facing a number of additional headwinds. relating to human rights abuses.
China due to these policy-led slowdowns? well, in december china’s state council accused the local government in bazhou, of violating government orders by going on a fee-collection spree from small and medium-sized businesses to make up for its declining land-sale and tax revenues from the property slow down. the local
Government ordered officials to collect $47m in new revenues, fines on the local community. a factory owner describes being forced by the local meteorological office to buy an expensive lightning rod from a inflated price. the central government, policies that had forced the municipality local party
And government officials in china are complaining that they, not the central government in beijing, have to foot the increasingly expensive bill for evergrande’s collapse. as i mentioned in a prior piece, they are being asked to complete evergrande projects that buyers have already paid for, but they do not appear to
Be told the press that his firm is refusing to do any work on evergrande projects for the local government unless he is paid in advance – he is already owed money for work he did for evergrande. in other cities local officials are trying to auction their evergrande problems away there are news reports of
Chinese people who have seen their home prices half, offering to give away their partially paid off homes to anyone who will take over the remaining mortgage payments. their suppliers to accept commercial paper – a form of iou – instead of cash payments. they promise to pay this off by a future date. the supplier is
Then able to use this commercial paper to pay its suppliers, provided it endorses the document by stamping a company chop or seal on it. this commercial paper can easily be endorsed ten times before it ends up with the final holder. if a company like evergrande is unable to pay upon maturity, the holder can sue every
Company freezing assets worth many times more than in 2020 the total amount of commercial paper issued by chinese companies came to 3.5 percent of chinese gdp. evergrande alone accounted for more than 60 per cent of commercial paper issuance by the top-20 real estate developers. so is the government doing
Anything to ease these problems? well, so far, they are not doing much. by 10 basis points and the five-year rate which is used to price mortgages was reduced by 5 basis points, the first cut since april 2020. the party’s year-end economic planning conference reiterated that the government would continue to
Continue its battles against “the disorderly the various crackdowns on private-sector what about the mostly state controlled chinese banks? well, chinese banks rushed to meet their state-required lending quotas last month by buying up low-risk financial instruments rather than by issuing loans. they bought
Banker’s acceptance bills, which are technically classified as loans and yield close to zero per cent. chinese banks’ have a cost of capital of around 2.5 per cent. on low-yielding banker’s acceptance bills rather than risking greater losses by issuing their own loans at higher rates of interest. many of
The problems being faced by president xi were in place when he took office, but it could be order for these problems to be unwound in an orderly manner. before implementing the three red lines policy that would force chinese developers to deleverage, the government could have made plans for funding local governments
That were reliant on selling land leases to developers to fund their operations. a lack of planning can also be seen in the growing contagion that is happening in chinese commercial paper markets. it would appear that under these policies, chinese property prices will be in structural decline, tight finances for
The foreseeable future. will also have to deal with growing regulations. for several years, china has contributed more pandemic struck, it often accounted for close to one-third of the world’s economic growth. as its property sector collapsed, birth these headwinds are unlikely to dissipate any time soon. this one
Next. see you again soon, bye.