China’s economy — the 2nd-largest in the world — is teetering on the brink of disaster.
Since this spring, Beijing has canceled initial public offerings, fined tech companies billions for antitrust violations, forcibly shut down China’sentire for-profit education industry, and sent CEOs running for the exitsto avoid the government’s ire. Even more dire, the Chinese megadeveloper Evergrande recently started missing payments on its more than $300 billion in debt, shaking global markets. The convulsions have woken the world up to a startling new possibility — that Beijing may be willing to allow some of its private corporate behemoths to collapse in a bid to reshape the economic model that made China a superpower.
The upheaval, spanning multiple industries and vast swaths of the country, is the result of one giant issue: China’s inability to borrow or buy its way out of its current economic crisis. For decades, the country relied on cheap labor and eye-popping amounts of debt, handed out by government-owned banks, to fuel economic growth — pouring money into massive apartment developments, factories, bridges, and other projects at lightning speed. Now the country needs people to actually use, and pay for, everything that’s been built. But the bulk of China’s population lacks the income needed to shift the economy from one driven by state investments to one sustained by consumer spending.
As a result, China finds itself stuck with a system that is overbuilt and overindebted. Take the country’s $52 trillion property market, of which the Evergrande mess is the poster child. With money easy to borrow, real-estate speculation became a popular way to store and build wealth for China’s young middle class. One academic described this model to me colorfully as an “addiction to real-estate cocaine.” It’s also been called a “treadmill to hell.”
As the government now attempts to deflate the real-estate bubble without bursting it, it has been forced to prepare the country for a period of slower growth and belt-tightening. And to make matters worse, China is also facing an energy crisis fueled by skyrocketing coal prices as well as a working-age population that is getting old without enough resources to retire on.
With China our new Economic Overlord, what hurts them hurts us.
The building blocks of globalized free market lowest cost capitalism is fracturing as the model can’t keep up with demand while decarbonising.
Those fractures are becoming impossible to ignore…
The world’s largest carmakers and other users of aluminium could be forced to halt production within weeks amid a “catastrophic” shortage of magnesium across Europe.
Magnesium is a key material used in the production of aluminium alloys, which are used in everything from car parts to building materials and food packaging.
China has a near-monopoly on global magnesium manufacturing, accounting for 87 per cent of production, but the Chinese government’s efforts to reduce domestic power consumption amid rising energy prices have slowed output to a trickle since September 20.
In Shaanxi and Shanxi provinces, the world’s main magnesium production hubs, 25 plants had to shut down and five further plants slashed production by 50 per cent as a result of the power cuts.
…if China’s domestic real estate bubble implodes, investors with external holdings may have to sell enmasse causing a glut.
How much of NZs housing market consists of Chinese speculators?
Looks like we might find out.
The economic threats makes the current sabre rattling military threats look friendly.
All eyes are on Evergrande and the dozen other companies who are now teetering before Christmas.
We should urgently start looking to other markets for our products.
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What’s that about history not repeating, but rhyming? In China today I see shadows of two 20th century failures:
JAPAN was the wonder child of the 1960’s. As a kid I was told they beat us in everything and would finish up ruling the world. Half-baked economists said they would be the world’s largest economy by 2000. Never happened. Much of the Japanese miracle was fuelled by copying western designs, dodgy trade practices and a property bubble. It all ended in the 80’s and Japan has been in stagnation ever since. They failed to breed and now face a demographic nightmare.
RUSSIA was a powerful giant standing astride the globe with a massive nuclear arsenal, right up until the day it collapsed inward on itself though being rotten to the core. Their attempt to rule a vast country from the centre through intimidation and violence proved fruitless. Few in the west saw it coming and academics were touting communism as a viable means of managing a country right up until it became a standing joke. Amusingly some still are! They also failed to breed so are a nation slowly dying.
In China I see elements of both:
Japan’s property bubble, IP theft and dodgy trade practices mixed with Russia’s attempt to direct peoples lives from a central committee and arbitrarily set economic targets regardless of their practicality and consequences. Their one child policy has had similar demographic consequences. The result will be the same.
As for NZ, because we have genuine housing shortage, so I doubt property prices will be affected that much, and the Chinese who have bought property here as a backstop won’t be selling any time soon. Of more concern is our reliance on them to buy our produce.
Impossible to disagree with the perspective you put forward.
Sorry – I disagree totally. Smug right-wing slant on real history. Andrew does not seem to know that as soon as China went Communist, USA poured aid into Japan to build a strong economic bulwark to defend the world against the horror of any system different to their capitalism eg – communism.
Andrew does not seem to know that even though Russia is an immense country, it has always been a poor one. Most of its citizens live in poverty for genuine reasons, unlike the USA. Russia suffered 80% of Hitler’s war effort, and did 80% of beating Germany in WW2. The Soviet system competed amazingly well to survive until 1990, but it was never going to defeat the USA’s determination to out-muscle it economically. Because USA is terrified of any alternative to its Capitalist system.
Andrew projects simplistic, right wing views to suit his own dogmas. No objective distance in his perspective.
NZ house prices are just about to go over the cliff. These swap rates are no joke
https://www.interest.co.nz/charts/interest-rates/swap-rates
Going to the moon as Orr scratches his balloon head.
Since NZ is now marketing itself as a 0% tax haven for Covid refugee billionaires, who with quantitive easing and price gouging during Covid are even richer, the market won’t crash in NZ.
In fact with the stupid neoliberal led reforms when anybody is taxed for selling or renting out their family houses leading to big shortages of stock (while any new builds are speculated on by the world and those moving to NZ) they may even go up. Who knows?
The problem is that neoliberalism isn’t very good at building housing that NZ needs, aka modest homes, that are well built and affordable without constant fees and building issues. You know like state homes, developers demolish to rebuild very slowly and expensively something worse that less can afford and new housing estates built on food plains that will only last 5 minutes with climate change and bankrupt the councils and neighbours with increased rates.
should read flood plains, not food plains! Anywhere cheap to build on land to make more profits for individuals is good!
They are building on the food plains as well. Many previous market gardens are now covered in suburbia.
True, Bryan Dods. Back in the 70s they warned us of the evils of urban sprawl. Yet we still have greedy Righties who claim that our housing crisis would be fixed overnight if we just opened up more land. They are the blind who do not want to see or understand.
Insightful commentary there Martyn.
The price of housing in this country is due a substantial correction in my view. There will be a fair number of people who have taken on huge debt that will feel extreme pain as this occurs.The precariat will suffer yet more. Meanwhile the AUS banksters will continue extracting billions of dollars from our pockets…
There is a correction coming here but the Chinese situation will have little bearing on things in my opinion.
I couldn’t possibly care less about property investors suffering some burn but I feel for many young first home buyers who almost certainly grossly overpaid for their home and will likely within a year be confronted by negative equity at the very time interest rates are climbing.
Arrrh nah!
Domestically they’re doing fine. Because they’ve ‘planned’ to focus on the own Domestic economy as perctheir latest 5 year plan as they know the world economy is in the toilet.
So when it comes to foreign debt they’re just saying too bad you can wait for 2 cents in the dollar.
They’ve got the West by the balls because they are still 40% of the world’s manufacturing base and hold 37% of the EU’s trade and investment as well has $3t chump change invested in the US as well as capital investments.
A number on a balance sheet is meaningless if you can’t utilise it.
They are the new Empire.
The US and old man Europe are dead.
Note China used to supply under 20% Magnesium to Europe, but they now supply nearly 90% and that is how neoliberalism works, creating monopolies that crash other markets and jobs, before controlling everything and crashing the market and controlling jobs on all the products that use the raw material.
We see it in NZ for wood. NZ government sold off the controlling interests of our forests for a song to anybody around the world (not just China), our government allowed the removal for the ability to process wood in NZ, and now are at the mercy of the markets, where people can’t build or farm due to wood (and everything else) shortages!
In addition basics like fruit, apples and Kiwifruit, which used to be sold for $1 in season around NZ and were fresh and good quality, now are through monopoly supermarkets at $5 – $10 per kilo. And that is AFTER they removed Kiwis from horticulture and bought in the sold called essential cheap labour. They seemed to have increased the price of fruit, surprise, surprise as more monopolies and scams abound in this industry.
Now everyones operations and health care is being cancelled as we wait for the Covid onslaught, mostly caused by being bought into NZ across the border! Seems like the rich get richer and prioritise while the poor get poorer and their lives at the mercy of a few industries close relationship to government.
Blaming China is the Wests’ favourite hobby(along with blaming Russia).
Russia and China are better placed to weather the coming “readjustment” of the deluded Western (ie USA) financial debacle because they are lessening their involvement with the USpetro$ as the world currency. The West have believed since 2008 that their endless money printing doesn’t come at the price of eventual collapse. Watch this play out over the next few months.
What the ‘new builds’ are really about.
St Marks penthouse sells for over $6m – after two years on the market
“A change in family circumstances meant the sellers, wealthy American couple Michael Rems and Julie O’Shea, never got to live in their St Marks apartment, which they had bought off-the-plan back in 2016 for around $6m.”
OK built, put on the market and empty for 2 years, before being sold. Could be why there is a housing shortage, aka building are being built taking up more resources and time because they are on the luxury side, and the majority of those working in NZ, can’t afford to buy the offerings, driving a need to let more sales to foreign owners to keep the property crash at bay.
Meanwhile in the middle of nowhere, houses for the poor are built on flood plains, with no clean emission or cheap way for them to get to work. I guess for future beneficiaries, then?
Don’t think the bubble is going to burst anytime soon, as the luxury market and ease of buying NZ property and getting residency here, has not changed.
Meanwhile more low wage, low skill people need to be bought in as it’s cheaper to be a beneficiary than brave NZ low wages thus driving constant demand for more workers, as servants for the low wage economy. Lucky their wages are subsidised by the state which is paid for by asset sales and the middle class which in no longer going into free hospitals and quality education.
And who do we have to thank for being so utterly at the mercy of whatever happens in China? Why everybody’s hero John “idiot man” Key that’s who.. The funny thing is that it’s been obvious since even before I could vote (still at school in fact) that the worst people in the country to entrust with our futures was the National party.. Not that the labour party has been much better, once the great traitor (Roger Douglas) and his clique of Thatcherites started the process of divesting us of the legacy of the work done by previous Labour governments to build a real egalitarian democratic society.. This gave the colnial exploitation proponents in the tories the green light to ramp the takeover up to the point of making life almost unsustainable for anyone who wasn’t already secure before the changes… But that wasn’t good enough for the tories.. They being the self interested rabble they had become by the turn of the century, were more than happy to give free reign to the short sighted, shallow profiteering, and “all the eggs in one basket” lunacy that was all the could have been expected from a blow in that was only ever about the money, and power… Myself, as well as a lot of people in NZ could see what the behaviour of the Key government was going to do to the country from even before they were elected.. And to say what we knew was to be singled out for retaliation… You could almost predict that 2008 was the year that the NZ dream ceased to exist…
Ackshully you can thank Helen Clark and the worlds first “free” trade agreement with the CCP.
” Myself, as well as a lot of people in NZ could see what the behaviour of the Key government was going to do to the country from even before they were elected ”
YES hit the nail directly on the head Stefan.
Whatever transpires we know will be as the CCP wants it. Nothing will stop their transformation of economic might into military might as has been laid out via Xi Jinping Thought, and the smallest of criticisms or deviations will not be tolerated, ask Jack Ma…
I’m sure Hui Ka-yan had fruitful discussions with the Party to re-educate his vision on the correct path his company needs to take.
@ MB. You write:
“Could China’s economic woe’s destroy NZ property prices?”
Lets hope so.
Y’awl should read this….
No, really. All of you. You must read this.
The Guardian.
George Monbiot. ( A fabulous writer and in my opinion one of the best in print. If not THE best.)
“Capitalism is killing the planet – it’s time to stop buying into our own destruction”
https://www.theguardian.com/environment/2021/oct/30/capitalism-is-killing-the-planet-its-time-to-stop-buying-into-our-own-destruction
“Faced with crises on an unprecedented scale, our heads are filled with insistent babble. The trivialisation of public life creates a loop: it becomes socially impossible to talk about anything else. I’m not suggesting that we should discuss only the impending catastrophe. I’m not against bants. What I’m against is nothing but bants.
It’s not just on the music and entertainment channels that this deadly flippancy prevails. Most political news is nothing but court gossip: who’s in, who’s out, who said what to whom. It studiously avoids what lies beneath: the dark money, the corruption, the shift of power away from the democratic sphere, the gathering environmental collapse that makes a nonsense of its obsessions.”
George Monbiot could be writing about AO/NZ. He is, in a sense though, isn’t he?
You also write:
“With China our new Economic Overlord, what hurts them hurts us.”
No, it doesn’t.
Fuck China. And fuck America while I’m at it. And fuck Britain. Fuck France. Fuck Australia. Fuck Germany. Fuck India. Fuck them all.
We have a country 28 sq km larger than than Fuck-The-UK and our primary industry is food production and there’s only 5 million of us.
So yes. Fuck the world, except us. We’re fucking lucky man.
As long as we don’t let riche, deep-state, dark-economy kiwi-as psychopaths fuck us before we fuck them first, as they’ve been doing to us, and our primary industry, for generations and generations, then we’ll be ok.
Seriously. We’re ok. The many things we’re told to worry about, specifically with regard to the ‘economy’ is rapidly revealing itself as being irrelevant.
Boys? Yoo hoo? If I were you fuckers I’d be scurrying back into the woodpile.
No idea what you are on Countryboy but please share the details.
@CB. Right on Countryboy.
Arrrh Nah! Domestically they’re doing fine. Because they’ve ‘planned’ to focus on the own Domestic economy as per their latest 5-year plan as they know the world economy is in the toilet.
So when it comes to foreign debt they’re just saying too bad you can wait for 2 cents in the dollar.
They’ve got the West by the balls because they are still 40% of the world’s manufacturing base and hold 37% of the EU’s trade and investment as well as $3t chump change invested in the US as well as capital investments.
A number on a balance sheet is meaningless if you can’t utilise it.
They are the new Empire.
The US and old man Europe are dead.
No, it will not. Housing will be in a shortage for a while, rising costs and supply issues might actually put a damper on building projects, there are a few tens of thousand people who might would simply like to return home and they all will need housing etc.
China calling in its debt however, that will be a different and way more interesting story.
A correction in house prices is preordained simply because they’re over valued. In my mind the status quo can be maintained so long as building supplies can’t be sourced causing cost increases and high house price tags. IF they can find the money. China won’t fail economically like a democracy would simply because those running the show can’t be fired. The Chinese government will sacrifice some of their own to teach them a lesson without fear of being voted out. They can hurt us anytime they please by deciding to not buy our timber meat wool livestock and pretty much everything else we sell. If they stop buying, people here Will loose their jobs. Our economy is already wobbly with indebtedness so a perfect storm. Many of those home buyers who are struggling anyway could loose their jobs and gap it from Auckland. In that situation there could be a sharp correction accompanied by mortgagee sales. Let’s hope not.
All lies!
Not a word of truth!
The real estate industry scream in terror.
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