Friday, February 9, 2024

China's Communist Party gets even more protectionist


Last Tuesday I published an article titled "Keep a very careful eye on China's economy".  In it, I warned:

Things are looking very precarious in China right now ... everything's in a state of flux, and that's a very undesirable situation for those running China.  They want things to be orderly, controlled, disciplined.  The free market (not that the Chinese market is particularly free, but let's ignore that for now) is none of those things.  Those two perspectives are colliding right now, with unpredictable results ... follow the money in China:  who has it, where it's being invested, and (perhaps most important right now) where it's being withdrawn from markets and industries.

Recent developments have made it clear that China's markets are anything but free, at least as far as foreign investors are concerned.  If one follows the money, it turns out that they're being short-changed to a massive extent, and the Chinese Communist Party (CCP) is pulling the strings behind the scenes to ensure that things are done their way.  Via Yahoo News, Bloomberg reports:

From afar, China Evergrande Group had all the makings of a killer distressed-debt trade: $19 billion in defaulted offshore bonds; $242 billion in assets; and a government that appeared determined to prop up the country’s faltering property market. So US and European hedge funds piled into the debt, envisioning big payouts to juice their returns.

What they got instead over the course of the next two years is a harsh lesson in the dangers of trying to bargain with the Communist Party ... key players on both sides of the negotiations paint a Kafkaesque picture of endless micro-managing by unidentified government handlers that was communicated to investors through a mind-numbing maze of channels, only to then be interrupted by months-long gaps in dialogue.

. . .

While global money managers have long known that the Chinese government exerts influence over corporate affairs in ways that are uncommon across the developed world, Evergrande was nonetheless a first-hand education for many of them in just how much authorities will intervene for the sake of political and economic expediency.

. . .

“Investors probably did not fully appreciate the risk of state intervention,” said David Knutson, chair of The Credit Roundtable, an organization of investors that works to respond to corporate actions averse to bondholders. “Apportioning losses between domestic creditors and foreign creditors will be political.”

. . .

[Evergrande's] court-ordered liquidators from Alvarez & Marsal now begin the process of seizing and carving up the developer’s 1.74 trillion yuan ($242 billion) of assets, more than 90% of which are located in mainland China. Yet given Hong Kong’s insolvency proceedings have limited recognition in China, creditors face an uphill battle recouping losses.

“Authorities are not likely to allow offshore claimants to secure valuable onshore assets while effectively insolvent developers struggle to meet politically tense onshore obligations,” said Brock Silvers, managing director at private equity firm Kaiyuan Capital.

There's more at the link.  It's worth reading to illustrate the complex web of private business and government bureaucracy when it comes to doing business in and with China.

This dead hand of bureaucratic and ideological control over businesses in China continues to impact the entire economy of that country, and of any entities seeking to do business there.  The CCP has made it clear that any such business must and will be conducted on its terms, according to its standards, and any attempt to challenge or change that will be punished.  There are fortunes to be made in China - for example, its consumers now buy more vehicles than any other country, so every automaker of consequence in the Western world has to do business there or be starved of those revenues - but those fortunes are always subject to political diktat, and can be erased with the stroke of a bureaucratic pen.  Market stability there cannot be guaranteed or relied upon.

Trouble is, the rest of the world is heavily dependent on China to buy its raw materials, and sell the consumer goods we need.  If that unstable, over-regulated, politically manipulated economic system crashes - as is not impossible - the consequences around the globe would be very serious indeed.  (Read Larry Lambert's comment at my earlier article to illustrate one of its knock-on effects.)



lynn said...

The comment from Winterborn on the last Tuesday posting is really bothering me:

"The Chinese demographics are a total horror show, with Shanghai university recently publishing an article to the effect of "Urban birth rate of .5" or less, because "China." Russia is on race to the bottom with them. I Remember Peter Zeihan (demographer among other things) saying that with the current data China would be at 645 million or less by 2050. NOT 2100. Fastest aging society in history. With lowest birth rate (worse than during the Holocaust) and worse than during the Black death. And absolute Enron numbers on their economy. And 1 child policy, now 2, now 3, now Please have kids you peasants! The demographics chart for China looks like a lopsided mushroom cloud. CCP admitted to over 100 million people dont exist, mostly women under 40. (The ones who have all the kids) over 30 million more men than women. Which is so much worse than it sounds."

If this is anywhere near true then China is going through a serious upheaval and contraction. Most of the factories in China use slave labor, parents show up and sell their teenagers to the factory. If there are no workers for the factories then China cannot produce and their hard cash sales go away.

BTW, my church has two young ladies who were born in China and adopted here in the USA by Christians when the appeals were being made 30 to 40 years ago. These young ladies and their thousands of cohorts across the USA will never go back to China. They were raised here from babies and are effectively Americans. That is another attribute of the Communist / Socialist societies, they give away their people for nothing.

Zaphod said...

Lynn: If you believe the slave labor bit and parents selling children to factories stuff then you are seriously mentally retarded with a dollop of holy rolling credulousness and a cherry on top. Beyond reason. So this comment more addressed at other readers who might be mislead by your ignorance.

As I type this, I’m sitting in a cafe in Chiang Mai (look it up, you’ll need to) watching CNY tourists strolling past. They look pretty healthy for slaves. Not covered in tattoos and face furniture like the Americans and Eurotrash.

It’s not 1966. They’re not waving the Little Red Book on Tiananmen Square. Get a clue.

Zaphod said...

And if you’re remotely curious about the early days of the CPC and their foreign help, have a read of this:

Thankfully CPC has moved on from that kind of influence and the Usual Suspects are not shown the red ( Geddit? Geddit?) carpet these days unless they happen to be selling US military tech and secrets to China - which Israel has demonstrably done on multiple occasions — especially in aerospace.

In fact one reason for so much anti-PRC propaganda is that Black Rock and rest of the Tribe cannot own the CPC the way they own your Congress and Senate. There is certainly dodgy banking and looting and pillaging in China. But the horror is that it’s done by well-connected CPC-affiliated Chinese and not people with names like Fink and Soros and Yellen. Truly a travesty that Chinese get to loot themselves and not the Unmentionables. So of course PRC must be destroyed. For Christ and Democracy, doncherknow? Boom, Boom.

Anonymous said...

I am truly impressed by Zaphod's logic failures. Of course the Chinese tourists in Chiang Mai are going to look healthy, they're the ones who can afford to go there.

That does not mean that there aren't plenty of Chinese people living in grinding poverty.

But what can you expect from an identitarian?

Zaphod said...

Dude. I live in Hong Kong. In and out of PRC all the time. 30 years in NE/SE Asia. I have more of a clue than you. As simple as that. Not blowing trumpet. I’ve seen rural bits of China and Tier 3 Cities. They have their problems. Frankly if I were you I’d be worried about stuff in your own backyard.

Mentioned CM because I happen to be here on vacation.

Identarian? Old Boy, that’s ALL there is when you get down to the serious stuff. Why do you think esteemed Blog Host got out of the land of his birth before he got run out? If you don’t belong to a tribe then all it means is that those who DO will shit on your head. But the Nobility! I salute you.