China In Freefall
Their leverage is at least 3.5x ours in 2007.
Peter Zeihan has stated that he believes China has overbuilt their housing by 100%, that there are a significant fraction of a billion homes, primarily condos of uncertain quality, that no one is ever going to call home. I recall him suggesting that a “dimes on the dollar” would be the end result once the bubble bursts. Here’s the best video in this area.
The financial trade publications are not willing to go there yet, but I’ve seen one clip, I think from Bloomberg, that indicated there were “only” a hundred million excess houses. Here we have a CNBC piece with Kyle Bass talking about the situation.
Some numbers pulled from the clip.
China stock index down 8% in one day.
Evergrand and Country Garden alone have $500 billion in debt.
Every publicly listed Chinese real estate firm is in default.
3.5X more leverage in their banking than we had in 2008.
70% of individual assets are in real estate.
Xi Jinping is demonizing short sellers and talking about making negative statements about China’s economy some sort of espionage type offense. China’s equivalent to our Boomers and Gen-X, The Cultural Revolution generation and The Recovery Generation have just learned their retirement savings are worth a fraction of their nominal value, perhaps as little as 20%.
Putting that $500 billion in perspective, the total real estate defaults for the prior four years were just $125 billion. It’s hard to get information on the total size of the market, every promising article is a teaser for a paywall, but this is the least nonsensical thing I could find. Evergrand is already out of the last and Country Garden has dramatically devalued. The two largest players having a fire sale will incinerate the entire sector. Then the support industries and the banks get hammered.
Conclusion:
China’s perception of their ability to invade Taiwan got a hard reality check from Russia’s invasion of Ukraine.
That reality check came before Xi Jinping learned their missile silo doors don’t open, and even if they did it wouldn’t matter, because missile fuel tanks have been filled with water. Taiwan is smaller than Ukraine, but they have first rate American weapons systems and a substantial water obstacle protecting them.
If China lunges that direction, they’ll be badly off balance and the world will knock them flat. They depend on global free trade but they don’t have the navy to ensure it. A simple nose count comparison with the U.S. Navy is inappropriate - our figure of 300+ ships are only those fit for long term blue water deployment. China has about fifty such ships, everything else are various flavors of patrol boat, akin to our Coast Guard.
What’s going on, big picture?
Hamas/Israel cease fire, just as soon as they can decide what to call it.
Iran’s Quds getting pummeled in Iraq and Syria.
Russia lost a 500 ton corvette but otherwise doing OK.
China about to implode and doesn’t dare attack Taiwan.
The attempt to dial down Gaza is welcome, but overall this looks like an environment where things are going to get hotter, not cooler. And every one of these players has issues that make a serious stumble possible. Maybe 2024 is going to turn into a decent years after all.