A number of foreign firms that once rushed into China to catch a rising tide are now retrenching. Last month, the beauty retailer Sephora, an arm of the French luxury group LVMH, announced that it was cutting jobs because of “the challenging market.” IBM is shutting its two research and development centers in China.
And policymakers trying to respond are hindered because they cannot rely on a principal fix that worked in the past. For years, local governments borrowed money for splashy development projects that kept people working and the construction sector booming — even if there wasn’t an actual need for that much infrastructure.
But the debt from that borrowing, often funneled through opaque funding channels, has ballooned to more than $7 trillion. With investors already jittery about China’s financial system, the days of lavish borrowing for vanity infrastructure are unlikely to return anytime soon.
The Chinese government has signaled its alarm by restricting access to data about the markets and economy. Last year, it suspended releasing youth unemployment figures when the number reached record highs. It started distributing the information again this year, with a new methodology that lowered the figures.
To quell discussion of a major economic crisis, officials have warned some economists not to draw public comparisons between China’s problems and the collapse of Japan’s debt-fueled property bubble in the 1980s, which weighed on its economy for decades.
China’s debt is difficult to ignore, however.
While the housing sector’s collapse has caused much collateral damage, the risk of insolvency is minimized by China’s tightly controlled financial system. The danger is that the government could have fewer fiscal resources to deploy to keep things from unraveling.
“The consequences for this fiscal crisis is less growth,” said Alicia Garcia-Herrero, chief economist for the Asia-Pacific region at the investment bank Natixis.
The economic uncertainty has left Chinese savers and foreign investors alike scrambling for safe places to park their money. Real estate prices continue to plunge, and Chinese stocks are underperforming compared with those in just about every other major country, including the United States, Japan and India.
Foreign funds have turned into net sellers of Chinese equities in 2024, which would be the first annual outflow since the data became available a decade earlier. Shares of around 180 Chinese companies have been removed from a critical stock market index since the start of the year, reducing the presence of Chinese firms in global benchmarks.
www.seattletimes.com/business/why-its-so-hard-for-china-to-fix-its-ailing-economy/
“We cannot lend in yuan because we have nothing to cover our foreign currency positions with,” German Gref, CEO of top Russian lender Sberbank, said at an economic forum.
That’s because the U.S. expanded its definition of Russia’s military industry earlier this year, thereby widening the potential scope of Chinese firms that could get hit with secondary sanctions for doing business with Moscow.
“Simply put, Putin’s administration has prioritized military production over all else in the economy, at substantial cost,” they wrote. “While the defense industry expands, Russian consumers are increasingly burdened with debt, potentially setting the stage for a looming crisis. The excessive focus on military spending is crowding out productive investments in other sectors of the economy, stifling long-term growth prospects and innovation.
fortune.com/2024/09/07/russia-economy-china-yuan-liquidity-shortage-us-sanctions-ukraine-invasion/
China stops short of Africa debt relief but pledges more cash in investments and credit lines
economictimes.indiatimes.com/news/international/business/china-stops-short-of-africa-debt-relief-but-pledges-more-cash-in-investments-and-credit-lines/articleshow/113145637.cms?
h/t Emeraldlight