China's economy is in trouble

The story of China being the global engine for growth seems to be being replaced by more and more bad news of late.

Their property market is in trouble, multiple big developers teetering on bankruptcy. Cracks appearing in their shadow banking system. We are not talking small numbers in either of these areas, hundreds of billions of dollars.

Youth unemployment so bad they are not going to report it anymore.
Growth stalled
Diversification away from investments and supply chains in autocratic countries by democratic nations.

It's not helping Australia either, hammering commodities and the AUD.

Where to from here is the trillion dollar question? Will the Chinese government unleash some more significant stimulus into the economy to keep the ship afloat, or will the problems keep snowballing, leading to the next big economic crisis?

 

Stimulus will save the day in my opinion.

Is now the time to buy those cheap mining stocks?

 

Let it fall, if it takes us down too so be it, we need a reset else our kids will never get a fair go. I would just be concerned, with youth unemployment so high, all them young men with nothing to do

 

Maybe not just yet ,as most of the options available are all still good no matter what the talk is..
But if you look seriously at what's happening then the risks are incalculable with floods drought ect.

 

if BHP is above 38-40 its never a buy

but indeed, the news from china are gazzilion times more concerning than our interest rates! if they fall, we all fall. not sure how much stimulus they can provide... currency gonna get devaluated lots (see rubl)

 

Our mineral export dependent state will have to do with less profit when China slows down.
We just need to adjust to that reality going forward and be 100% realistic about our dependence on digging stuff out of the ground.

If China can export their deflation to the world. It would be a good thing for the advance economy fighting inflation.

 

Property crisis: Xi Jinping faces China’s ’Lehman Brothers moment

China’s $US60 trillion property edifice is by far the largest asset class in the world.

It accounts for half of the world’s entire property sales, an astonishing figure given that China’s workforce is already contracting and net migration from the countryside has stopped.

The developers have debts of $US5 trillion. By comparison, this is six times greater than America’s $US800 billion subprime property debt on the eve of the Lehman crisis.

They rely heavily on the $US3 trillion “trust” segment of the shadow banking nexus known, which has no lender of last resort. These trusts are starting to blow up. The $US140 billion Zhongzhi Empire is the most disturbing casualty so far.

The property bubble is the Ponzi scheme that keeps China’s local governments afloat.

They rely on property for 38 per cent of total revenue, mostly from land sales. These sales have collapsed. The finance ministry says local government income fell 21 per cent in the first half of 2023

 

I think this is most likely, the negative feedback loop is about to go into overdrive with Evergrande bankruptcy, I wouldn't be surprised to see something big rolled out from the Chinese government within the next week.

 

It's a little bit counter intuitive but this could actually result in more demand from Australian properties. My hypothesis is that the Chinese elites who have previously parked their money in mainland property will need to find somewhere else for it to go.

 

Positive effect on Ozzie mineral market ?

 

Yeah, like the Australian property market

 

China are slowing imports (and even stopping some where they can... It a excuse) . Imports are down 12.4% and its not just demand. They seem to be seeking alternative supply in some cases. Perhaps in readiness for taiwan ?? Perhaps to preserve balance of trade as exports have slowed too largely due to the USA which is buying 25% less chinese product. Their tarrifs and other actions seem to be a readiness to lessen reliance on imports from some countries. They even admitted to it in July press conference and mentioned geopolictical and defensive measures..

They are also going hard on mineral and techology advances to lessen imports or rare minerals for batteries. They dont want exposure to imported minerals for battery production it seems.
Australia should consider a defensive position. We should only export processed battery minerals. The USA are doing this and reached supply deals with Japan to bypass reliance on china. Nickel cobalt lithium etc

A reminder of oil and the late 30s. Japan was squeezed out of oil markets by USA.

 

it's not just about the state. Weak mining companies mean a weak ASX.

your last point as has merit though, we are already seeing significant price reductions coming out of China and will only continue.

Deflation is only good to a point though - we dont want it sticking around for a long period of time.

 

So let me get this straight, china goes down it takes aus with it and hopefully our property market crashes too?

 

As always, the irony. If you capitulated the last time (or the time before that, etc etc etc) there was a risk of a major crisis, you would have less than if you just held onto property and shares.

If you didn't capitulate the last time , you would now be much better placed (LVR, cashflow, net assets) to weather a real downturn this time. IF it happens. Even if it happens but recovers quickly.... who wants to buy property at the peak price of each of the previous downturns that actually happened, and the ones that didn't?

 

i didnt say that

just that a weaker Chinese economy also means a weaker Australian economy

 

sadly exported Chinese deflation won't save our Aussie inflation problem as we are primarily a services based economy. We could end up in the unenviable position of a continuing inflation headache and an export crisis

 

interesting - I like the comment about Australia's inability to mobilise anything

Link:
12ft |

 

Normally the opposite will happen. If our economy slows, interest rates will need to be slashed and stimulus injected.

The RBA has modeling that for every 1% cut to interest rates, property goes up 30%.

Let's say RBA cuts rates from 4.1% to 3.1% due to China slow down, then you can expect property to rise by 30% (probably next year).

If it gets real bad and they have to go to 2.1%, then you can expect a 60% rise in home prices.

 

Macroeconomics is never simple. There may be some deflationary impacts if China goes down. But, if China goes down (and they take their medicine instead of doing another huge construction stimulus), commodity prices will go down HARD (China is the majority buyer of just about every commodity). When commodity prices go down, the Australian dollar goes down (less demand for Australian dollars, essentially). When Australian dollar goes down, inflation goes up (costs more to import). When inflation goes up, rates go up.

Lots of other things can happen concurrently that affect this in other directions as well