China woes

It seems that there is not too much concern that China's property market woes and the collapse of Evergrande can provoke an international financial crisis.  Hope they're right.  

Here's another article's summary:

Many are concerned that losses would force bondholders to sell other investments or shed riskier assets to raise cash, hurting markets that may seem unrelated. The catchphrase being thrown about is “contagion,” with many worried about tightly connected global markets.

Not all analysts agree. Analysts at Barclays called such speculation “far off base” while acknowledging the probable spillover effects with economic implications.

“But a true ‘Lehman moment’ is a crisis of a very different magnitude” and Chinese authorities would need to make a series of policy mistakes in response to the crisis for this to be of the Lehman level, they added.

SocGen economists said investors seem to be “differentiating between safe and risky borrowers,” which at the moment would limit the spillover to the wider financial market. On the whole, the sector’s investment-grade index also remained largely stable, they added.

They agreed largely that China’s situation is “very different” as the property sector’s links to the financial system are “not on the same scale” and noted that the capital markets are not the primary means of funding. The message is that as long as the regulators step in, the situation is manageable.

“The lesson from Lehman was that moral hazard needs to take a back seat to systemic risk,” Barclays analysts wrote.

Update:  a very unspecific explainer in Washington Post notes this:

Another concern is credit markets. Evergrande has done so much borrowing, and so many lenders are at risk of getting burned, would its potential default have a ripple effect for other borrowers? On both of these questions, experts say, it’s still too soon to tell.

But troubling signs already are emerging: Remember, hundreds of millions of Chinese homeowners who could see their property values drop, meaning there’s a good chance they’ll rein in spending. Global consumer markets — on everything from clothes to electronics to food — rely on the prolific buying power of the Chinese middle class. If China is poised to spend much less on consumer goods, there will be economic ramifications around the world.

That bit in italics:  is that right?   I didn't really realise it was so significant on a global scale, seeing I always think of China as more the country getting rich by making stuff the West wants (and therefore driven by our consumers' demands, not their's) 

Update 2:   I have been waiting for a while for a review article about the incredible and sudden degree of Chinese government intervention into industry and society, and how it very much feels a bit like a Cultural Revolution (Lite, perhaps.)

I think this is the article I was looking for, from a couple of weeks ago in the Washington Post:

Xi Jinping’s crackdown on everything is remaking Chinese society

It starts:

The orders have been sudden, dramatic and often baffling. Last week, “American Idol”-style competitions and shows featuring men deemed too effeminate were banned by Chinese authorities. Days earlier, one of China’s wealthiest actresses, Zhao Wei, had her movies, television series and news mentions scrubbed from the Internet as if she had never existed.

Over the summer, China’s multibillion-dollar private education industry was decimated overnight by a ban on for-profit tutoring, while new regulations wiped more than $1 trillion from Chinese tech stocks since a peak in February. As China’s tech moguls compete to donate more to President Xi Jinping’s campaign against inequality, “Xi Jinping Thought” is taught in elementary schools, and foreign games and apps like Animal Crossing and Duolingo have been pulled from stores.

A dizzying regulatory crackdown unleashed by China’s government has spared almost no sector over the past few months. This sprawling “rectification” campaign — with such disparate targets as ride-hailing services, insurance, education and even the amount of time children can spend playing video games — is redrawing the boundaries of business and society in China as Xi prepares to take on a controversial third term in 2022.

 And further down:

The scope and velocity of the society-wide rectification has some worried China may be at the beginning of the kind of cultural and ideological upheaval that has brought the country to a standstill before.

Last week, an essay by a retired newspaper editor and blogger described the changes as a response to threats from the United States. “What these events tell us is that a monumental change is taking place in China, and that the economic, financial, cultural, and political spheres are undergoing a profound transformation — or, one could say, a profound revolution,” wrote Li Guangman.

The essay, picked up by China’s state media outlets, prompted comparisons with a 1965 article that launched China’s chaotic decade-long Cultural Revolution, and left even some in the party establishment worried.

Hu Xijin, the outspoken editor of the state-run Global Times, criticized the article as misleading and an “extreme interpretation” of the recent rush of regulatory orders that could trigger “confusion and panic.”  

Differences over the article may be a sign of deeper dispute within the party, according to Yawei Liu, a senior adviser focusing on China at the Carter Center in Atlanta, who wrote that such disagreement indicates “raging debate inside the CCP on the merits of reform and opening up, on where China is today . . . and about what kind of nation China wants to become.”

Update 3:   oh, another good piece in the Washington Post has dropped:

Anyone who has visited China over the past several decades has heard anguished stories from Chinese friends about the results of Mao Zedong’s social engineering in the Great Leap Forward and the Cultural Revolution. China spent 40 years recovering from those disasters to become a great, modern nation.

So, I can almost hear the gasps inside China, from the generation that lived through the nightmare years, as President Xi Jinping has moved down a Maoist path this year toward tighter state control of the economy — including “self-criticism” sessions for Chinese business and political leaders whose crime, it seems, was being too successful.

Xi’s leftward turn represents a major change in the management of the Chinese economy, in the view of a half-dozen experts I’ve consulted over the past week. It has the idealistic goal of “common prosperity” and a fairer distribution of China’s new wealth. But Xi will drive these changes using the ruthless instrument of an authoritarian, one-party state — and you can already see the purges and figurative “dunce caps” for those he views as obstacles.

How much is driven by Xi's own inflated views of himself?  Maybe a lot?:

Xi is a cunning and ruthlessly successful politician; since taking power in 2013, he has purged a generation of leaders in the Communist Party, the military, and the intelligence and security services to gain absolute control. His hubris is that, like Mao, he now seeks to become a man-God, whose thoughts are holy writ.

Xi’s unabated hunger for power is evident in his drive for a third term as party leader. That would break the two-term rule that has prevailed in China’s modern history and provided the checks and balances of group leadership. “China had solved the major problem of a one-party state — succession. Now they are un-solving it,” argues a former top-level U.S. national security official.