Made in China

No matter what profession you are in, no matter where you live, China has a very large impact on your daily life – whether you know it or not.

China has been an up and coming powerhouse – economically speaking for years now. While we may not always agree with their environmental record, their labour practises or really a lot of their governance – we can never really seem to resist a product made cheaper through the Chinese economy.

When the US went through a little economic crisis in 2007 and 2008, China was able to stimulate their economy quickly, and avoid most of the meltdown that the US experienced. Whether you like it or not, being a communist country can have some advantages – economically speaking, and one of those advantages is that you can push out money from the government to exactly where you want it – and in a hurry. Using targeted stimulus, China was able to get funds to the juncture of the economy that needed it most – when it needed it most. There was no vote in Congress, there was no protests, there was no political posturing and political grandstanding – they simply put the money where it needed to go.

Ever since 2007 / 2008 China has become a real force to be reckoned with. Massive cities, fantastic engineering, and building upon building, upon building going up. Of course, a lot of the funds for these projects come from the Government through State owned or State sponsored banks. This is great for pushing out stimulus money quickly, but it can also work in reverse, and get money out quickly – when it shouldn’t be.

As of right now, China is having a problem with development. They simply have too much. Too many apartments, too many buildings, too many of everything. Completed buildings sit empty, and no one is buying. China is home to some of the largest property developers, and as the old saying goes ” the bigger they are, the harder they fall”.

As of yesterday, 124.5 BILLION dollars worth of bonds are in default by Chinese developers. The total market is around 175 BILLION dollars. This means that around 71% of all bond used to build are now in default. Now, as we all know the term default can mean many things to many people, but it is never a word that means something positive. No one ever jumps for joy when the word default is thrown around.

With the recent leg down in economic activity, soaring interest rates, and general economic tightness, seeing 71% of bonds on real estate go into default isn’t exactly something that makes me think better days are around the corner.

Unlike in 2007/2008 when China had to deal with the shockwaves from the US economy and banking crisis, it may be the world dealing with the aftershocks of a Made in China financial crisis.