5 ms·

China Sees Bankruptcies Surge; Bondholders May Get Less Back

68 points by adventured 8y ago

chrisco255 8y ago
Oof, that's gonna hurt their social credit score. I wonder if they'll be able to file for Chapter 1984 bankruptcy? =P In all seriousness, I wonder if China does hit a recession, what the effects will be on the world economy?
- baybal2 8y ago
  > In all seriousness, I wonder if China does hit a recession, what the effects will be on the world economy? I bet it will be quite positive - contract manufacturing becoming big again, new player other than American coming on the scene first time in 2 decades.
- hackits 8y ago
  They hold the largest reserve of USA dollars.
  - ac29 8y ago
    That's a myth. Most US debt is held by the US public - all foreign holders combined are less than 50%. China is the largest foreign holder, but only holds about 5% of US debt. https://en.wikipedia.org/wiki/National_debt_of_the_United_States https://en.wikipedia.org/wiki/National_debt_of_the_United_St...
    - baybal2 8y ago
      But even if that 5% will be dumped onto markets, the US rate will have to possibly double
    - indemnity 8y ago
      Yeah, it’s not a huge percentage of US total debt, so the “China owns the US” hyperbole is a bit overblown.
      - msla 8y ago
        > so the “China owns the US” hyperbole is a bit overblown. It is, however, a useful lie to spread for political reasons.
- Foobar8568 8y ago
  It will be a nice crash. Look at their stock market over the year(s), both HK and Shanghai one. I would bet the recent drop in the US stock market is related to what is going on there.
  - pcr0 8y ago
    Related, but the treasury rate hikes played a bigger part than the trade conflict.
- ianai 8y ago
  It seems like a pretty complicated situation. On one hand, I don’t know how exposed the s&p 500 are to China. If their business is China centered then they’re going to see reduced demand. If their business exploits cheap labor and exports out of China elsewhere then they may see their costs diminish. As a general, econs view any deflationary pressure much more gravely than inflation. I think it’s probably awful for the world economy. The largest companies of the world trade and operate everywhere and their business may well depend on stability in Chinese demand. That could pull the world into a recession. I’m thinking an international finance/banking company could see its assets severely deflate and thus spread the re-evaluation around the globe.
- sonnyblarney 8y ago
  The academic effects would be worse than the real effects. China won't just stop buying stuff from the West, and the stuff they buy isn't quite critical. You'd see a commodities softening, which would hurt Aussie Canada, but hey, cheap commodities for others is not so bad. Surely manufactured goods would be cheaper, or won't rise with inflation, again good for Western surpluses. But the perceived economic shocks would be bad: Wall Street is looking for a reason to sell off right now, given historic highs, ugly multiples, everyone's looking at each other waiting to see who'll hit the panic button first, so some 'big ugly macro news' is enough to stifle things quite substantial. Macro perception is important, much like in 2008 the most important part of the bailouts were not the bailouts, but the signal of the bailouts i.e. implying that 'the Fed + Gov has the back of the US economy' meaning everyone can move forward knowing there will be no domino failure. By so many accounts China needs to slow down anyhow.
sonnyblarney 8y ago
China has a pretty big layer of fictitious economics overlaying their real economy. So the number of defaults is whatever they want them to be, at least in any particular sector. They can control this with the stroke of a few keys and tweaks of policies concerning lending etc.. As long as the real economy reaps real material gains ... and there are no shocks ... then the fiction can continue relatively unabated. A lot of empty real estate is just fine in a county where more than 300M people still live in the doldrums, meaning, there's some market clearing availability/viability intrinsic to the situation (i.e. 'somebody' will buy the stuff in a panic, even rational speculators, meaning theirs a 'floor' to any panic in that sector, it's not a black hole) Now if foreign orders for goods falter, that could definitely be a problem. A real geopolitical calamity ... or something causing disruption to their new infrastructure projects etc. ... could be a problem. But sans existential crisis there's no reason to panic there's a lot of room for adjustment. Something to keep an eye on. EDIT fyi here are countries with whom China has the biggest deficits, i.e. they buy more than import, granted this would exclude major US imports etc. but gives a hint of who is more dependant on China than otherwise: Taiwan: -US$110.9 billion (country-specific trade deficit in 2017) South Korea: -$74.7 billion Australia: -$53.1 billion Switzerland: -$29.8 billion Brazil: -$29.4 billion Japan: -$28.1 billion Germany: -$25.7 billion Angola: -$18.1 billion Saudi Arabia: -$13.4 billion Malaysia: -$12 billion So while fewer Chinese buyers of iPhones might not be good, at least the US gets even cheaper stuff of the tons they already buy. Whereas the Taiwanese will just be bloodied.
- doctorpangloss 8y ago
  I’m pretty sure the fiction of their economy is all the coercion required to make people work for shit. Like the Uigher slave labor camps are but one end of a very deep spectrum of abuse, of millions of Chinese. Accounting debt in that respect is a red herring. What do you owe those people’s families? Their future children? That won’t ever show up on a balance sheet, and no economist has calculated that. Why you’re splitting hairs over the numbers in a fundamentally unfree country? I guess we’re conditioned, by our relatively free place, to find benefits-of-doubts. Trust me, “foreign orders for goods” going one way or another isn’t going to do anything except affect overinflated equity markets. The slave labor is a bigger deal. Did we really think an unfree place could have a fair market, let alone an ethical one?
zachguo 8y ago
tldr section missed another important bullet point. "The new pace may continue: China’s top planning body called on Dec. 4 for local officials to clean up the debt of firms with excess production capacity or insolvent balance sheets by 2020."
ksec 8y ago
I remember not long ago some of those Bonds from Chinese companies with Interest Rate of 13- 17%, and they were in USD. I was thinking that is too good to be true. As it turns out there is a high chances you don't get anything back. The thing is I don't understand why and how there is a lack of liquidity in China. It all changes within 18 months, from they have too much money and starting buying even more overseas to literally scrambling for cash.
- erikb 8y ago
  It is not news that you don't get anything back. There is a documentary (forgot the name, but should be googleble) about how China created loads of fake companies to get money from naive investors. The problem with this whole situation since day one was: How can you be sure that you're not cheated if it's in the other side sovereign's interest when you get cheated. So yes, there was probably never a point where you could have invested reasonably into Chinese bonds or stocks or startups.

68 points by adventured 8y ago

Oof, that's gonna hurt their social credit score. I wonder if they'll be able to file for Chapter 1984 bankruptcy? =P In all seriousness, I wonder if China does hit a recession, what the effects will be on the world economy?

baybal2 8y ago
> In all seriousness, I wonder if China does hit a recession, what the effects will be on the world economy? I bet it will be quite positive - contract manufacturing becoming big again, new player other than American coming on the scene first time in 2 decades.
hackits 8y ago
They hold the largest reserve of USA dollars.
- ac29 8y ago
  That's a myth. Most US debt is held by the US public - all foreign holders combined are less than 50%. China is the largest foreign holder, but only holds about 5% of US debt. https://en.wikipedia.org/wiki/National_debt_of_the_United_States https://en.wikipedia.org/wiki/National_debt_of_the_United_St...
  - baybal2 8y ago
    But even if that 5% will be dumped onto markets, the US rate will have to possibly double
  - indemnity 8y ago
    Yeah, it’s not a huge percentage of US total debt, so the “China owns the US” hyperbole is a bit overblown.
    - msla 8y ago
      > so the “China owns the US” hyperbole is a bit overblown. It is, however, a useful lie to spread for political reasons.
Foobar8568 8y ago
It will be a nice crash. Look at their stock market over the year(s), both HK and Shanghai one. I would bet the recent drop in the US stock market is related to what is going on there.
- pcr0 8y ago
  Related, but the treasury rate hikes played a bigger part than the trade conflict.
ianai 8y ago
It seems like a pretty complicated situation. On one hand, I don’t know how exposed the s&p 500 are to China. If their business is China centered then they’re going to see reduced demand. If their business exploits cheap labor and exports out of China elsewhere then they may see their costs diminish. As a general, econs view any deflationary pressure much more gravely than inflation. I think it’s probably awful for the world economy. The largest companies of the world trade and operate everywhere and their business may well depend on stability in Chinese demand. That could pull the world into a recession. I’m thinking an international finance/banking company could see its assets severely deflate and thus spread the re-evaluation around the globe.
sonnyblarney 8y ago
The academic effects would be worse than the real effects. China won't just stop buying stuff from the West, and the stuff they buy isn't quite critical. You'd see a commodities softening, which would hurt Aussie Canada, but hey, cheap commodities for others is not so bad. Surely manufactured goods would be cheaper, or won't rise with inflation, again good for Western surpluses. But the perceived economic shocks would be bad: Wall Street is looking for a reason to sell off right now, given historic highs, ugly multiples, everyone's looking at each other waiting to see who'll hit the panic button first, so some 'big ugly macro news' is enough to stifle things quite substantial. Macro perception is important, much like in 2008 the most important part of the bailouts were not the bailouts, but the signal of the bailouts i.e. implying that 'the Fed + Gov has the back of the US economy' meaning everyone can move forward knowing there will be no domino failure. By so many accounts China needs to slow down anyhow.

sonnyblarney 8y ago

China has a pretty big layer of fictitious economics overlaying their real economy. So the number of defaults is whatever they want them to be, at least in any particular sector. They can control this with the stroke of a few keys and tweaks of policies concerning lending etc.. As long as the real economy reaps real material gains ... and there are no shocks ... then the fiction can continue relatively unabated. A lot of empty real estate is just fine in a county where more than 300M people still live in the doldrums, meaning, there's some market clearing availability/viability intrinsic to the situation (i.e. 'somebody' will buy the stuff in a panic, even rational speculators, meaning theirs a 'floor' to any panic in that sector, it's not a black hole) Now if foreign orders for goods falter, that could definitely be a problem. A real geopolitical calamity ... or something causing disruption to their new infrastructure projects etc. ... could be a problem. But sans existential crisis there's no reason to panic there's a lot of room for adjustment. Something to keep an eye on. EDIT fyi here are countries with whom China has the biggest deficits, i.e. they buy more than import, granted this would exclude major US imports etc. but gives a hint of who is more dependant on China than otherwise: Taiwan: -US$110.9 billion (country-specific trade deficit in 2017) South Korea: -$74.7 billion Australia: -$53.1 billion Switzerland: -$29.8 billion Brazil: -$29.4 billion Japan: -$28.1 billion Germany: -$25.7 billion Angola: -$18.1 billion Saudi Arabia: -$13.4 billion Malaysia: -$12 billion So while fewer Chinese buyers of iPhones might not be good, at least the US gets even cheaper stuff of the tons they already buy. Whereas the Taiwanese will just be bloodied.

doctorpangloss 8y ago
I’m pretty sure the fiction of their economy is all the coercion required to make people work for shit. Like the Uigher slave labor camps are but one end of a very deep spectrum of abuse, of millions of Chinese. Accounting debt in that respect is a red herring. What do you owe those people’s families? Their future children? That won’t ever show up on a balance sheet, and no economist has calculated that. Why you’re splitting hairs over the numbers in a fundamentally unfree country? I guess we’re conditioned, by our relatively free place, to find benefits-of-doubts. Trust me, “foreign orders for goods” going one way or another isn’t going to do anything except affect overinflated equity markets. The slave labor is a bigger deal. Did we really think an unfree place could have a fair market, let alone an ethical one?

zachguo 8y ago

tldr section missed another important bullet point. "The new pace may continue: China’s top planning body called on Dec. 4 for local officials to clean up the debt of firms with excess production capacity or insolvent balance sheets by 2020."

ksec 8y ago

I remember not long ago some of those Bonds from Chinese companies with Interest Rate of 13- 17%, and they were in USD. I was thinking that is too good to be true. As it turns out there is a high chances you don't get anything back. The thing is I don't understand why and how there is a lack of liquidity in China. It all changes within 18 months, from they have too much money and starting buying even more overseas to literally scrambling for cash.

erikb 8y ago
It is not news that you don't get anything back. There is a documentary (forgot the name, but should be googleble) about how China created loads of fake companies to get money from naive investors. The problem with this whole situation since day one was: How can you be sure that you're not cheated if it's in the other side sovereign's interest when you get cheated. So yes, there was probably never a point where you could have invested reasonably into Chinese bonds or stocks or startups.