China. That’s it. That’s the joke. A flood of polling data has shown the growing popularity of communism and socialism, proving that colleges and universities are drowning in Marxist-Leninist-Maoist-Stalinist-Kimist-Castroist-Ceaușescuist literature and propaganda. For millions of young people who did not live through the Soviet Union and were unaware of the atrocities committed in the name of this lethal ideology, they have a new exhibit on why the absurd idea never flourishes and inevitably leads to decay, misery, suffering, and unhappiness: China.
Ain’t China Evergrande?
The saga of China Evergrande Group will never die. It has been nearly two years since the beleaguered real estate developer defaulted on its debt. The company has made promises to become more efficient and restructure its organization. But a Hong Kong court recently howled that “enough is enough,” ordering the property to liquidate.
After metastasizing into the unofficial spokesperson of China’s debt crisis – thanks to its $330 billion in liabilities – Evergrande’s struggles continue to worsen. “It seems to me that the interests of the creditors will be better protected if the company is wound up by the court, so that independent liquidators can take control over the company,” Judge Linda Chan said in a Jan. 29 ruling. Overseas creditors, who are owed a whopping $25 billion, could not reach an 11th-hour agreement to restructure the outstanding balance.
Of course, it is not only Evergrande that is enduring a meltdown. Country Garden, another massive Chinese developer, cannot repay its debt. The good news? It might be able to avoid defaulting on its yuan-denominated bonds.
Put simply, Evergrande will need to prepare for imminent liquidation, but it will not be a process that occurs overnight. Considering the sheer size and scale of the firm’s projects and black hole, it will likely transpire over years with different governments, regulators, and politicians. In the meantime, investors cannot shield themselves as shares were halted after plummeting more than 20%.
Big Trouble in the Stock Market
In the United States, the stock market is approaching all-time highs, fueled by expectations that the Federal Reserve will slash interest rates this year. Seven-thousand miles away, the stock market is spiraling out of control.
The Shanghai Composite Index has tumbled 13% over the last year, while the Hang Seng has plunged 28%. Chinese equities have performed better in recent sessions, driven by the anticipation that Beijing will unleash a stimulus and rescue package to prevent a further freefall in stocks. Bloomberg News turned bearish traders into bulls by reporting that China was considering efforts to stabilize the stock market by employing a $280 billion rescue fund.
Until the new public policy prescription is finalized, the government did say it will bolster mid- and long-term fund injections into capital markets. Although investors were ebullient, market observers believe this is “inadequate.” Aninda Mitra, head of Asia macro and investment strategy at BNY Mellon Investment Management, told Reuters: “China’s stock market package is a welcome measure and shows increasing responsiveness from the authorities. But at under 2% of its GDP, we fear this is still inadequate.”
The news might be splendid in the short term, but it does signal long-term doom for the world’s second-largest economy. While overseas funds have led the exodus out of the stock market in China, local investors have also hopped on the first train out of town. Well, they tried anyway. Authorities prevented local funds from hitting the sell button and handed out $41 billion to spur domestic investment through China Securities Finance and Central Huijin Investment.
One more thing: Beijing engaged in some good old-fashioned intervention by restricting short selling of some securities. Regulators, picking winners and losers, halted lending of specific stocks to suspend the short-selling craze as part of efforts to prop up the slumping equities arena. Xi Jinping to the rescue!
The Chinese economy is not what it was before the coronavirus pandemic. Based on the treasure trove of data, it is not in tip-top shape, much like President Xi. The country has slipped into deflation because of weak domestic consumer demand. Factory activity is seesawing between contraction and stagnation. Unemployment is elevated. Exports only recently turned positive. The gross domestic product (GDP) was weaker than expected in the fourth quarter.
Kyle Bass, Hayman Capital Management’s chief investment officer, had the best explanation of China in a recent interview with CNBC: “Investing in communism never pays, and when US Investors figure that out, it’s going to be too late.”
The International Monetary Fund (IMF) ostensibly disagrees, lifting its GDP forecast for Beijing. In a recent outlook, the IMF projected that China’s economy would grow by 4.6% in 2024, up from the previous estimate of 4.1%. For the IMF, it pays to be bullish on Beijing because it controls the institution.
For years, it had been a foregone conclusion that China would become the world’s top economy. However, a lot has changed, and now Beijing might struggle to hold on to second place as India is quickly climbing the ranks in the world order. The IMF forecasts that India’s economy will accelerate by 6.5% this year. By comparison, the United States is predicted to grow by 2.1%. A blend of industrialization, urbanization, and stockpiling can be attributed to India’s meteoric ascent. It is like taking a time-travel trip to the late 1990s when China had witnessed similar growth.
Will history repeat itself? This is how the fortune cookie crumbles.