US vs China vs EU...the Global Trade war.

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It's mitigated by what I'd call 'Regulation with Chinese Characteristics'.

Almost every senior bod in the financial sector is a Party member or otherwise plugged into that network,. As a result they're both briefed on what they're expected to do and read their fortunes if it looks like they're heading off-piste.

The closest equivalent I can think of in a democratic state would be the post-war Japanese keiretsu whose senior members were closely linked to government, largely through shared alumniship of Tokyo University Law School.
The problem with these sorts of financial crises is that they're only blindingly obvious after the fact. Beforehand people are too busy telling themselves that we're in a new era, the old rules are obsolete, and everything will be fine.

It's funny that you mention the Japanese as a model which China can follow to avoid problems. It was precisely the Japanese bubble which collapsed around 1990 that I was thinking of. It started in the property market, spread to the stock market, and then to pretty much the whole economy. They still haven't really recovered to this day. Economists are still arguing over the cause and aftermath.

I don't know if you recall this, but during the 1980s the Japanese were an economic colossus who had the Americans in a panic. They seemed destined to dominate the world economically, and they were a common stock villain of Hollywood movies and American pop culture in general. It was probably just the even greater perceived threat of the Soviet Union which kept the Americans from fixating too strongly on the Japanese as an "enemy".

The Japanese meanwhile were assuring themselves their success was due to factors inherent to their culture, and that this would continue indefinitely. Nobody seemed too concerned about such things as "the grounds of the Imperial palace in Tokyo being worth more on paper than all the property in the US put together", to pick one favourite tit bit which people liked to quote. Another example was something like three fifths of the world's biggest companies by stock market value were Japanese.

So when you say the Chinese regulatory system is very similar to that of post-war Japan, I don't feel at all re-assured.
 
So when you say the Chinese regulatory system is very similar to that of post-war Japan, I don't feel at all re-assured.
It's not an exact analogy, since a democratic society has elements that are totally unique to that system. The point I was trying to get across is that the decision-makers are part of the same social networks and tend to have broadly similar views on what they should be aiming for, even if they disagree on the methods.

In terms of the 'how', it's probably better analogised to Frederick the Great's Prussian officer corp - "A good officer should know when to disobey an order" - in that they are expected to achieve the aim even if the task becomes defunct.
 
It's not an exact analogy, since a democratic society has elements that are totally unique to that system. The point I was trying to get across is that the decision-makers are part of the same social networks and tend to have broadly similar views on what they should be aiming for, even if they disagree on the methods.

In terms of the 'how', it's probably better analogised to Frederick the Great's Prussian officer corp - "A good officer should know when to disobey an order" - in that they are expected to achieve the aim even if the task becomes defunct.
That's not really addressing the point I was making however. What you have described is a mechanism for changing the consensus once it is decided that the old consensus is no longer working.

It's a great explanation for how China were able to change from Marxism to a market economy. It doesn't really address the issue though that they got the first consensus wrong when they opted for Marxism in the first place.

I very much suspect that if faced with a financial crisis the Chinese will indeed decide to change course and address the underlying issues and then carry on.

The problem is that a financial crisis in China will affect the whole world, a good many parts of which are looking more than a bit shaky at the moment. Property markets are over-inflated in many countries across the world. A long period of low interest rates has resulted in excessive debts in business and governments. Significant parts of Europe are looking very shaky at the moment, and much of the third world is in even worse shape. The pandemic has exacerbated all of the underlying economic and financial problems everywhere.

There's nothing inherent about China which would make it the inevitable starting point for a global financial crisis. The problem is that it's such a big part of the global economy that a problem there will echo around the world.

I'm also worried about the American tech industry, which has become overly (in my opinion) focused on being an extension of the advertising industry. They seem overly due for another crash which would have secondary effects on US financial markets which would also echo around the world.

Beijing did what many people felt was the right thing to stop Ant Financial's plans, and I hope that they handle the Evergrande problem properly as well. It's all something we need to be aware of however, as for how they handle things there will have consequences for the whole world.
 
What you have described is a mechanism for changing the consensus once it is decided that the old consensus is no longer working.
Not exactly. What I was describing was the means by which they've prevented more Jack Mas from queering the pitch; and the means by which they reined him in when his plans threatened to.

It's regulation, Jim, but not as we know it.
 
It looks like China's big tech players have been 'encouraged' to give something back to the community

Xi was recently "encouraging" China's billionaires to redistribute their wealth. Chinese communism is back on the march after tolerating capitalism as a means to an end. That or Xi is afraid of upsetting Scottish Green party's Patrick Harvie.
 
So when you say the Chinese regulatory system is very similar to that of post-war Japan, I don't feel at all re-assured.

Seems so. Another Chinese contagion?

'Embattled Chinese property giant Evergrande on Wednesday suffered a second credit rating downgrade in two days, raising fears the world's most indebted company will default and sending its shares tumbling below their listing price 12 years ago.

'The move came a day after Moody's slashed its rating, indicating it is "likely in, or very near, default", while Goldman Sachs has cut the stock from neutral to sell.'


 
Consensus seems to be that even if they default there won't be any state backed bailout for Evergrande. I suspect that it is time for some lessons to be learned.
 
Consensus seems to be that even if they default there won't be any state backed bailout for Evergrande. I suspect that it is time for some lessons to be learned.
I doubt for the real estate portion, but the group has holdings in certain strategic-priority fields like electric vehicles and sustainable energy generation that might receive more sympathy.

On the other hand, the only thing in the PRC that's seen as 'too big to fail' is the PRC itself.
 
I doubt for the real estate portion, but the group has holdings in certain strategic-priority fields like electric vehicles and sustainable energy generation that might receive more sympathy.

On the other hand, the only thing in the PRC that's seen as 'too big to fail' is the PRC itself.
Viable assets can be given a new home with a financially sound company. Evergrande itself though could be wound up and the shareholders would lose everything, the bondholders would lose somewhere between "a lot" and "everything", and the banks could be made to feel a bit of pain.
 
I should add that one of the reasons given as to why Japan's financial crisis was so prolonged and recovery was so difficult is because so many zombie companies were propped up instead of being dissolved. This kept resources in terms of people, capital, equipment, buildings, etc. tied up doing nothing useful instead of being released for someone else to make use of.

Propping up zombie companies helps individuals over the short term as they get to keep their jobs, but it harms society over the long run.

This by the way is a separate issue from temporary crises such as wars or pandemics where otherwise viable companies are affected by short term events. The above refers to individual companies who do not have a viable business.
 
More gloomy forecasting on Evergrande, and it's potential impact within China and further afield.

'As speculation over Evergrande’s fate continues to build, there are concerns that a disorderly default on its obligations could trigger a financial crisis in China that could spread throughout the rest of the world.

'In an announcement on Wednesday, the Chinese Housing Ministry confirmed that Evergrande would not be making interest payments to banks scheduled for Monday. This has raised the uncomfortable possibility that Evergrande’s woes could spread into the Chinese banking system, with potentially far-reaching consequences.

'As it stands investors in the Chinese high yield bond market is already pricing in the strong possibility of trouble ahead, with borrowing costs for companies with lower credit ratings rocketing towards the highs recorded during last year’s initial lockdowns.

'Going forward markets expect that eventually the Chinese government will step in, ensuring that Evergrande’s woes don’t lead to a risk of contagion throughout the Chinese financial system.

'But exactly how this bailout or backdoor rescue package could play out remains to be seen, particularly if Beijing wants to hold investors’ feet to the fire to send a message they will no longer so readily step in.

'However, there is increasingly speculation that the holders of US dollar denominated Evergrande bonds and those holding Chinese yuan denominated ones will be treated quite differently in the event of a default or restructuring.

'In a recent interview with Bloomberg, Nomura International Hong Kong credit analyst Iris Chen shared her prediction that Beijing will ensure that Evergrande delivers homes to buyers and pays suppliers, but that dollar denominated investors would get only 25 per cent of their money back.'


 
It has the potential to get ugly. maybe even Lehman ugly.

Pension allocation 100% into bonds for a few days would be sensible if you haven't already done it.
Hang Seng down 4% today.
 
As previously trailed, another Chinese contagion seems to be taking hold.

'Cryptocurrency prices plunged Monday morning during a widespread market sell-off sparked by concerns of a potentially catastrophic debt default in China, pushing many of the world's largest digital currencies to their lowest levels in more than a month.

'Evergrande, China's second-largest property developer, alerted banks last week that it would be unable to make debt payments due this month, sparking a sharp drop in the Chinese real estate sector. The losses quickly spread to broader markets as experts started warning its default could potentially create a Chinese "Lehman moment," market analyst Tom Essaye, author of the Sevens Report, wrote in a note last week, referring to the U.S. investment bank that collapsed at the onset of the Great Recession. "There isn't enough clarity on how Evergrande's challenges may affect the global economy and that uncertainty is enough to spook markets," wealth advisor David Bahnsen, of California's The Bahnsen Group, said in a Monday email.'


 

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