Posted on 12/11/2023 5:40:28 PM PST by anthropocene_x
When Moody’s Investors Service announced to the world it might downgrade China, the lessons from Japan’s deflationary nightmare were written between the lines in bold font.
This week’s big economic news in Asia was Moody’s slashing Beijing’s country's credit outlook. It dropped just a few weeks after Moody’s also lowered Washington’s rating outlook to “negative” from “stable.” The warning to Beijing, though, seemed timed to spur Chinese leader Xi Jinping’s government to change course on debt before it’s too late.
The central worry, of course, is China’s default-plagued property sector, a threat that echoes Japan’s 1990s bad-loan crisis. Another dynamic that alarms Moody’s is hidden debt on which neither its analysts, nor Wall Street investors nor government ministries around Asia can get a clear answer.
Those hidden IOUs could be sitting on the balance sheets of dozens of Chinese government-backed entities pivotal to infrastructure development. They’re being racked up by municipalities issuing local government financing vehicles, or LGFVs, that often lack transparency. And there’s the myriad-layers financing schemes supported by the People’s Bank of China.
Now, add in signs that Xi’s government is prioritizing fiscal and monetary stimulus over structural reform—a sign that China has reached its maximum pain tolerance for addressing debt troubles.
(Excerpt) Read more at forbes.com ...
Dead-beat China owes American bond holders $1.5 trillion in railroad treasury debt that China hasn’t paid on since they went communist.
Interesting considering Forbes is owned by the HK Chinese. This is the best they can do to sugarcoat the impending crash.
with regards to the question posed: I have been wondering something similar for many years.
There sure was a lot of angst and wailing when Rockefeller Center and Madison Square Gardens (MSG! LOL) were bought by Japanese investors. If memory serves, they bought for premium price and lived to regret it.
After Moody cut the yuan to negative, China dumped huge dollar holdings on the forex market to support the yuan. Where it will end, and who will be on top, is not clear.
China is about to hit the wall. Sounds like a good time for China to retake Siberia! It’ll give their people something to distract them from starvation and poverty!
Advice for the Chinese about their giant bubble about to burst....
Dead-beat China owes American bond holders $1.5 trillion in railroad treasury debt that China hasn’t paid on since they went communist.
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Apparently, the government of the United States doesn’t care about the issue you brought up because they allow the Chinese access to the US Treasury market. Just like we do for Japan, UK, Germany, France, etc.
Another reason is China is a producer of goods that the United States wants access to, since our private & public corporations are run by people who can’t train labor, hire labor, or make a profit in these low margin industries.
Finally, there is no way $1.6 trillion in railroad bonds are ever going to be paid on pre 1949 debt. Our GDP was $273 billion with a real GDP of $2.107 trillion in 1949.
Finally, after researching this subject for the last 30 minutes. I have no idea who the original bond holders were or are....The Foreign Bondholders Protective Council created in 1933 doesn’t provide that information.
Japan never invested all of its household savings in unfinished apartment buildings that are worth, at best, 10% of their carried value.
The size and exposure of the Chinese housing bubble exceeds anything in history.
Good point.
https://www.americanbondholdersfoundation.com/"
I'd forgotten about them until I read articles like this when Trump was in office. https://www.foxbusiness.com/markets/historic-chinese-bonds-trump-leverage-beijing
“The size and exposure of the Chinese housing bubble exceeds anything in history.”
Current notional value of all derivatives is over $600 trillion, so I think China has a ways to go.
https://www.bis.org/publ/otc_hy2211.htm
I’d forgotten about them until I read articles like this when Trump was in office.
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Tell It Right,
What I appreciated about the subject you raised, is very few people know about the debt repudiation that a variety of governments took after communist revolutions. Also, as a proponent of freedom, free enterprise, business efficiency, capitalism, property rights, etc, the Chinese need to make a payment on those bonds.
However, it will be a smaller payment because the Chinese can’t afford the economic pain on their population that a trillion + pay out would cause. On our side.....the creditor side, we don’t need any artificial *inflationary pressure at this time.(Markets and supply chains need time to adjust to the post Trump stupidity that is plaguing our nation.)
* The payout may not be inflationary, it depends on how much money the bond holding organizations receive & what they do with it. For instance, if they take pennies on the dollar from the Chinese, but the Chinese redeem the Treasury Department the majority. Then Treasury increases national debt reduction. That debt reduction would most likely be a counter to inflation.
My main point, and I didn't articulate this clearly, was that we should already be treating China like a bad bond investment because they show they're willing to make excuses to not pay people back.
And China's response will be, "You and what army?"
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