The Potential Strategic Shock of The Coming Default By China's Biggest Property Giant--
There are a number of "experts" who are whistling past the graveyard in regard to the likely default of Chinese Property giant Evergrande on approximately $300 billion in bad debt.
Additionally, there are a couple of things these experts are ignoring. One is that the recent new regulations on lending by the government are part of a pattern of a crackdown on the new tycoons of the Chinese Real Estate and Tech giants across the board, as was started with President Xi's "neutering" of Alibaba's Jack Ma. The Chinese government is already committed to standing behind 1 trillion in bad debt built up by excessive speculative lending, and massively restricting new lending by their private sector.
Secondly is that if this coming default becomes what is being described as China's "Lehman moment", the question remains open as to how they might respond to a panic in which domestic lending collapses, and foreign investors start pulling out. How will China fund the kind of bailouts which the US undertook in response to the 2008 housing market bubble collapse? Remember that the greatest damage in 2008 here was caused not by the debt defaults themselves, rather the pyramided financial leverage tied to that debt. When Evergrande blows, a lot more than 300 billion goes up in smoke with it.
Has anyone considered that China might dump their US Treasury holdings to raise cash? They are the US government's largest foreign creditor, with more than 2 trillion in Treasuries. They have held on to this and continued making purchases because it has not been in their interest to crash the government bonds and currency exchange value of one of their primary markets and trading partners. Up until now.
China is committed to its ambitious "One Belt, One Road" super infrastructure project of building a transportation corridor through the Chinese western provinces, Central Asia, and to the Middle East. They intend to construct the infrastructure for hundreds of new cities,, and to bring fresh water to Xinjiang province, in effect terraforming the Gobi Desert. That is their National plan, and they will not cut the funding for that in order to bail out property giants and tech entrepreneurs. They have no compunction about screwing the millions of "Little guys" caught holding the bag for these bad debts. They don't need the US Dollar as they once did, when their economy was export dependent on the US Markets demand for cheap Chinese goods. They are developing other markets.
So, the question to ask is, might China, (which is infuriated at what they see as an aggressive incursion into their military sphere by the Anglo American USUKAUS deployment and sale of nuclear powered submarines to Australia to counter Chinese provocations against Taiwan and Japan) then react by selling off US Treasuries to pay for a bailout? How fed up is President Xi with the corruption in his own country of western allied "Mandarins" who are openly bucking the Chinese CP leaders, and what message might he send in order to reestablish controls? What would hold them back? What would be the effect on the US dollar if China dumps Treasuries? How does this impact the global system if the US GOP simultaneously plays a chicken game with the debt ceiling here, forcing a US government default in the next weeks?
It is useful to remember that the collapse of the "John Law Bubble", the US Stock bubble in 1929, the tech and housing market bubbles of the early 2000's were all triggered by the failure of one or two companies.
The so-called experts who blithely dismiss the coming financial upheaval in China as "manageable" join a chorus of posturing liars and idiots who have made these kinds of infamous pronouncements throughout history.
Financial "experts" have the worst track record of all experts, unlike those in the sciences. Economics and finance are largely subjective, driven not by data, rather by psychology and behaviors. Because these people live in the illusory world of money rather than production, they don't understand real value. They are actually poorly educated, and have no concept of a long term. If they are Americans and graduated universities here, unfortunately their idea of "long range" is what the markets in Iceland do at 3 am tonight. They move trillions of dollars a day with high speed computers using trading algorithms to exploit minute perturbations in the markets. They invest in short term money makers and treat it all as an exercise in game theory.
China however is a 4,000 year old plus culture, which never was without a "long term" plan, regardless of whatever type of regime held power. They have absorbed all neighboring peoples who have invaded, ruthlessly asserted their national interests, and their views toward the West are still to this day shaped by their vivid historical memory of how they were exploited and almost conquered by the 19th Century Opium Trade, against which they fought two wars of resistance.
People who claim to be experts and say they know what China will do who don't look at this long wave of history are the last ones you should be listening to.
