May you live in interesting times

To all you loyal readers clamoring for a resumption of the column, thank you and here it comes. For those of you just sparing a few seconds from an already hectic schedule, thank you for the time. I hope that you find the results to be both interesting and of assistance.

Just to recap, every figure that I use is legitimate – there will be no knowingly fake news, not ever. And should you have any questions as to the sourcing thereof (or have any information that you feel would be pertinent for a follow-up column), please don’t hesitate to let me know. Further, I assure you that absolutely no political agenda will be manifest in this column – that said, politics and economics are inextricably linked, particularly in this age of global interdependence.

Well, first of all, that alleged old Chinese curse of, “May you live in interesting times”, was never Chinese and was never actually Asian in origin either………but no one can doubt that these times are “interesting” and plenty of people would wish for ‘a little less interesting, please’. Is China in recession, not in recession, going into recession, coming out of recession? It seems to depend upon whom you ask and when you ask – the answers (sic) seem to be all over the place and often postulated by those who have not been in China for much time (if any) and speak no Chinese dialect. How they can get a handle on what’s going on when even Chinese-speakers with guanxi are having trouble is truly a source of amazement verging on incredulity; when the official figures showed (sic) the indebtedness in China was minimal and statements declared that bank exposure to NPL’s (non-performing loans) was not significant, those of us who know China were more than slightly skeptical. Many is the time that one had to wonder whether those making the statements knew that same were untrue or were victims of underlings who didn’t wish to purvey “bad news” (read truth).

Now that the overall government-related debt in China has ‘blossomed’ in one short year from a reported US$4T to 8T to an estimated 23T (and counting) and that the “insignificant bank exposure” is now astronomical by WTO standards (some banks in Henan are now reporting 40% – forty per cent!) One might even make a sick joke and say that it is the performing loans that are insignificant. Yet caveat emptor notwithstanding, there are vulture funds voraciously buying distressed loans (Nikkei, April 9/19), even as the Chinese Government has aroused speculation that they may stop supporting smaller banks (Financial Times, April 8/19) – the average Mainland bond failure last year was the highest on record, at over US$500 million average each (47 of them)….that’s a lot of chum in the fiscal ocean and, with a lot more to come, it remains to be seen what the “real value” is on those assets, many of which were questionably valued in the first place.

Just to give a dose of ‘real reality’ to those comments above, the Wall Street Journal reported on April 10th/19 that many banks in China were ‘over-exposed’ (sorry about the pun – it was too good to leave out!) to the coal industry and, even though the Chinese Government wants to curtail the use of coal, much as it wishes to curtail the use of cigarettes, it can’t – too many jobs and multipliers thereof depend on these industries continuing. But what a coal seam was worth when coal was King Coal and the future was ‘bright’ (sic) is now a lot different when it is only a matter of time before such mining is emphatically concluded as the increasingly vocal public is demanding. So, what is the asset ‘worth’ and is the repayment of the US$1.3T (stated liabilities as of early 2019 – what the unstated are is anyone’s guess, as is how the figure of $1.3T was derived) secure?

What does ‘secure’ mean in the context of China when the State Pension Fund is calculated (SCMP, April 12th/19) to run dry by 2035? How can China continue to grow in the range of world financier expectations of 6%+, even as the base continues to expand and even as the number of available workers continues to contract? The unvarnished answer is that, long term, it cannot, at least can not without legerdemain with the figures and massive state infrastructure projects. Beijing is already pouring money into chip makers (Nikkei, April 11th/19) as part of the 2025 initiative and part as a hedge against future dependence on an American-dominated industry. Yet so far, despite all the money and all the support, they have essentially nothing of current value to show for it – and this with tech transfers and borrowing (sic) notwithstanding.

The Financial Times on April 12th reported that exports from China rebounded and, on the same date, Reuters reported that new (bank) loans in March also rebounded and that more policy easing is expected. The onus still seems to be firmly on quantity with regrettably minor supervision of quality (witness all those NPL’s). As they say in French – Plus ça change, plus ç’est la même chose…the more it changes, the more it remains the same. Or in Mandarin – Bu yi yang de shi yi yang de ……If it isn’t, it is.


LJ Capundag

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