Blindspot #012 – China’s collapse [NOT], and it’s 2022 Taiwan take-down

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See the world others don't

Blindspot #012 – 06.10.21

—>> China’s Collapse [NOT], And it’s 2022 Taiwan take-down? <<—

Blindspot wants you to see the world others don’t. 

To say that the world is caught in a profound cycle of turbulence has become a truism. It would seem as if every possible thing that could generate bad news headlines, and extreme asymmetric risks- is doing exactly that. 

While the broad daylight collapse of Evergrande, one of China’s major property developers may not be a blindspot, it should be said that the underlying political strategy by way of which China is managing this crisis is the blindspot to pay attention to. A deeper strategic review of internal Chinese policy reveals that President Xi Jinping is focused on delivering on his ‘Common Prosperity’ campaign, which will inevitably lead to curbing- and reigning in anything from speculative capitalism, to gaming, effeminate men, and celebrity culture. 

Asia Times, for example, argues that, “The pressures facing Evergrande and peers put nearly 30% of China’s $14 trillion economy at risk.” 

China is not buying into the Wall Street Washington mantra that has the world believe there are some companies that are ‘too Big to Fail.’ China will most likely allow Evergrande to fail, while doing its best through other statist interventions, to cushion the fall-out, and somewhat soften the blow on firstly the domestic economy, global bond and stock markets. 

As explored in Blindspot #006, Part 2, Will the Kabul syndrome hit a US dollar close to you soon?, it is necessary to see developments in China in the context of US inflation, and off-the-charts levels of ongoing QE (Quantitative Easing//Money Printing). 

Since formation in 1997, the company completed 1,300 commercial, residential, and infrastructure projects, employs 200,000 people, and is present in 280 cities. However, it is straining under a mountain of liabilities exceeding $300 billion. In recent months Evergrande has been skidding on the brink of collapse due to it being unable to honour scheduled debt interest repayments. An imminent default by the company could lead to financial contagion not only in China, but spread to holders of bonds- and global debt instruments linked to Evergrande.

But, and this is a BIG but – the Evergrande slide began in 2020 when the Chinese government introduced policy measures to curb speculation in the country’s booming (and dismally over-leveraged) property sector, and also to bring sky-rocketing debt levels of property developers under control. It is argued that with Evergrande, an avalanche of bankruptcies in the property sector will follow.

Deutche Welle reports on the above situation that: “Evergrande relied on pre-sales to finance itself and keep its activities afloat, and the crackdown forced the group to offload properties at increasingly steep discounts. Investors have made down payments on around 1.5 million properties, Bloomberg reported… Real estate is one of the major engines of China’s growth, responsible for 29% of economic output, and any bankruptcy of such a major company would have huge repercussions. Evergrande’s collapse would be the biggest test that China’s financial system has faced in years.” 

Blindspot warns that Western market assumptions of companies being ‘too big, or too grand, to fail,’ will not fly in China. 

Instead, as seen in 2019, reported by Shirley Yu, China nationalised 43 major corporates that were on the brink of financial collapse due to speculation, and reckless rodeo activities by the cowboys of China’s communistic form of capitalism. 

The latter actions were not ‘bail outs’ like those seen in the USA and Europe post the 2008 GFC. No, it is a case of the state not bailing out, but nationalising over-indebted companies, imprisoning and criminally charging executives, and in most cases completely gutting, and erasing the very memory of such companies and their errant speculative ways.

Another Blindspot emerging together with the Evergrande collapse, and the impact it will have on China’s economy/financial system, is that China is like Europe and the world markets currently confronted with escalating energy costs. Long-term lockdown induced crumbling of supply chains, combined with the pan(dem)ic induced fragility of the world’s connected economies (meaning all of them), is furthermore creating conditions for a perfect storm in financial systems the world over. 

Furthermore, Blindspot peaks at hints that recent incursions by Chinese military aircraft into Taiwanese airspace is a precursor to events that may unfold in 2022. 

It is speculated that China is currently strategically testing Taiwan, while holding back on major military actions. It may mobilise forces after hosting the 2022 Winter Olympics (February 2022, Beijing) to recover what it sees as an integral part of Chinese territory. Tat-ta Taiwan! 

With this in mind, Blindspot looks into the predictions made by Armstrong Economics pertaining to two forthcoming panic cycles in politics, being the year 2022, and 2024. According to Armstrong Economics this will be the first occurrence of panic cycles in politics since the 1930s. The latter provides some food for thought, seeing that we know what the panic politics of the 1930s ultimately bled to… (say no more). 

Links 

Izak Odendaal and Dave Mohr. 2021. When a perfect storm hits the markets …Global equities fell, bond yields rose and the dollar gained in September. 5 October 2021. https://www.moneyweb.co.za/news/markets/when-a-perfect-storm-hits-the-markets/ 

Deutsche Welle. 2021. Evergrande: Why the Chinese property giant is close to collapse. https://www.dw.com/en/evergrande-why-the-chinese-property-giant-is-close-to-collapse/a-59175953 

WION. 2021. The China Evergrande Collapse. September 2021. https://www.bitchute.com/video/EZE3SqSw1gVE/ 

Geller Report. 2021. China Flies 25 Fighter Planes Into Taiwan’s Air Defense Zone. 3 October 2021. https://gellerreport.com/2021/10/china-flies-25-fighter-planes-into-taiwans-air-defense-zone.html/ 

William Pesek. 2021. Xi plots prudent response to Evergrande crisis: Beijing is weathering property giant implosion but risks are rising – from sector contagion to energy shortfall. 4 October 2021. https://asiatimes.com/2021/10/xi-plots-prudent-response-to-evergrande-crisis/

Shirley Yu. 2021. Why the Evergrande collapse is part of China’s ‘economic justice’ plan: Xi Jinping’s stated vision for the nation is underpinned by state-owned – not private – enterprises. TheNationalNews.com. https://www.thenationalnews.com/opinion/comment/2021/09/28/why-the-evergrande-collapse-is-part-of-chinas-economic-justice-plan/ 

Armstrong Economics. Norway abandons all restrictions and the US goes authoritarian. 4 October 2021. https://www.armstrongeconomics.com/world-news/tyranny/norway-abandons-all-restrictions-us-turns-authoritarian/?__cf_chl_jschl_tk__=pmd_j8GQQPt0kTU55aNnM.1kBgU5j13GkVXI7AaA8JPjLFI-1633445398-0-gqNtZGzNAnujcnBszQm9