This feels a little gratuitous, but I don’t generally care. We’re talking about an autocrat whose policies deserve to be derided.
Chinese equities on Friday erased the entirety of the grand reopening rally which began to fizzle in February.
The Mainland benchmark dipped below its October 31, 2022 closing level, and ended the day down 0.7% on the way to a terrible week.
Sentiment is abysmal. Foreign investors have sold more than $22 billion in A-shares through the links since early August, the most ever.
This time last year, investors were likewise down on Chinese shares. Xi Jinping was in the process of consolidating virtually all domestic political power in himself at the Party congress, where he sidelined moderates and evinced what scarcely needed underscoring: China will persist under one-man rule for the duration of Xi’s lifetime.
Investors weren’t amused, but they got over it pretty quickly as speculation mounted around an imminent end to “COVID zero.” A few street protests later, the Party abandoned Xi’s notoriously draconian virus curbs virtually overnight. Local equities surged some 20% over three months. Then, it began to unravel.
As evidence mounted that there would be no reopening renaissance for the Chinese economy, faith in the country’s equity market began to fade anew. The recovery never managed to get any traction and by June, it was clear there was no recovery.
Reluctant to resort to big-ticket stimulus, Beijing instead rolled out dozens (hundreds by one analyst’s count) of half-measures aimed at putting a floor under the economy, mostly to no avail. GDP figures released this week were eyed skeptically: The numbers were flattered by the deflator. Nominal growth in China is nowhere near the pre-COVID trend. Although retail sales beat expectations for September, imports are mired in a seven-month slump and consumer price growth is teetering on the edge of deflation.
Meanwhile, Country Garden has defaulted. I suppose we can quibble, but as of Friday, the fallen builder hadn’t made a $15.4 million interest payment on a dollar note. The 30-day grace period expired this week. That’s a default. As one credit analyst quoted by Bloomberg dryly noted, “It would be helpful to market participants that the company officially announces its default and communicates its future plans.”
The CSI 300 fell more than 4% this week, its worst stretch since the post-Party congress rout last year. The decline took the gauge back to levels seen in and around the onset of the reopening euphoria.
As discussed here earlier this week, officials in Beijing are now pondering a new plunge protection effort, wherein state-backed investors and government entities would buy up shares to prevent the bottom from falling out, as they did in 2015.
As it turns out, foreign capital knows a dictator when it sees one. And although you can oppress the populace and “massage” the data, you can’t bully the economy into performing.
Maybe it’ll turn around from here. Maybe this is the bottom. Or maybe not. Maybe it’ll get worse. If it does (get worse, I mean), it couldn’t have happened to a nicer guy.
Panicky dictators scare me.
If I was living on Taiwan I might be getting a little nervous. There’s nothing like whipping up patriotic fervor and military action to distract a restive population.
I am friends with a 35 year old Chinese woman who has lived in the US for 15 years.
She was born during the “one child” policy era. Her mother had the foresight to make sure she learned English from a very young age and after graduating from college in China, she came to New York for graduate school, then stayed, worked and got married.
She said most people her age would like to leave China- but not everyone wants to leave their family/friends. She also told me that although somewhat difficult, it is still possible to get money out of China and that most Chinese, of her age range, think that “Xi has lost it”.
China’s equity market is entertaining. China’s debt market is maybe less entertaining but bigger/worse.
Property developers have appx $2.5TR debt. About $0.2TR is offshore dollar bonds, of which about $0.1TR is in default. About $1.7TR is owed to banks, who have been “encouraged” by CCP to extend. Some more is owed to trusts and insurers, I’m not sure how able they are to extend and pretend.
LGFVs reportedly have $9.0TR in debt, much being short-term. CCP is allowing some local govts to issue longer-maturity bonds to refinance their LGFV debt (seem to be a case-by-case policy) and encouraging banks to extend.
CCP won’t permit rapid collapse/writeoff of this $11.5TR in developer + LGFV debt, but also won’t assume responsibility for it, so the can-kicking slow-mo workout may drag on the economy including banks for many years.
I think everyone assumes the additional $5.9TR of household property debt (mortgages) is “safe”, but as long as the RE mood is sour/prices falling, the debt service (>20% of household income) may drag on consumer spending.
Data from these links (credible news sources, but delete if inapprop)
https://www.reuters.com/world/china/chinas-troubled-property-sector-face-more-debt-defaults-2023-10-20/
https://www.ft.com/content/f4382d3a-b423-4151-a204-8789960ff42a (citing GS report)
https://www.bloomberg.com/news/articles/2023-09-27/china-starts-local-government-debt-swap-program
Love the name tag.
I know. Isn’t that great? “Sir, I’m going to have to ask that you show us your pass.” “Excuse me?” “Your pass, sir.” “You know damn well who I am.” “Yes sir, but you specifically said nobody gets in without a pass.” “Listen, you’re either gonna let me in here or I’m gonn– you know what? Fine. Qin, where’s that fu–ing name tag? Let me have it.” pins on name tag “Are you happy now?” “Yes, that’s good. Nice to see you Chairman. You’re free to go inside now.”
So who’s the worst national CFO’s, Xi or Erdogon? (Hint: a look in the mirror for each shows an image larger than life.)