China

See if this tickles your funnybone.

Evergeande New Energy Auto has gone out of business. They calculate they lost $17M USD per car sold.

 

60 minutes did a piece on China and they interviewed some folks who indicate China looks like growth will slow from 9-10% annual, down to 3-4%. That is not an economic Armageddon.

On the other hand, I spoke with a Chinese stock broker in base reality and he said their market is down between 30-40%. That is a full on crash but he also said the Chinese government controls when people can sell. They won't let people sell into an extremely down market so we don't know how bad it really is.

He said he has clients who are stuck with stock they don't want and expect to be stuck with it for years.

BTW, he advised me to stay away from the Chinese market at all cost. Lol!

 

I don't expect a quick turnaround for China due to their Xi's ignorance but he is making some changes and showing signs he cares about the economy.

These are uncharted territories. The truth is, I have no idea how it will play out and I don't believe anyone else does, either.

I do think China on the skids is good for north america and Europe, in terms of inflation.

I've been doing nothing for four years. Now I have built up a substantial gic ladder and money market holdings.

I don't suggest this is the best approach, only that it is the safest for my wife and I. We haven't sold much. This is just a period of suspended market reinvestment.

One thing that is clear, China has a long way to fall. There are 30-40 EV manufacturers that are likely to fail this year and their RE sector hasn't had a bloodletting for weeks so its due, as well. I think a few dozen Chinese EV builders will make it to next year, before they fail. We will see.

 

In case someone doesn't see the significance of an RE or EV company failure, the impact is indirect and expansive.

If an RE company goes down and 20000 people lose their jobs, its no big deal in the grand scheme. But, that RE company uses several engineering companies, some of which contract exclusively to the RE company. Those eng companies are now destabalized and some will fail.

Construction companies will be taken out. Even construction companies that have no connection to the failed RE company because who wants a new home when there is a glut of unfinished hones on the market?

Suppliers will not be paid.

Buyers who purchased hones and can't use them are making payments on something that could end up being torn down. They aren't about to inject a bunch of money into the economy now that they have no chance of receiving rent or maybe directly lost their home.

If buyers stop paying their mortgages, that will cause pain in the banking sector. There is already plenty of pain in the banking sector.

Economic implosions are an acceleration that can be extremely difficult to stop or reverse.

Long term, China should be OK but they are going to have a rough ride.

On the other hand, if someone were to put a bullet into the forehead of Xi, it would likely trigger a very fast recovery. Optimism is the cure and its nowhere to be found, ATM.

 

Meanwhile, in China, BYD sales have fallen off a cliff in February. I'm talking about 75% down.

The only reasonable explanation I can think of is the Chinese economy is a crater.

This is just one month but and February is always a bad month but this is abysmal.

BYD cannot survive if this turns into a trend. They should be able to survive a long time as they have been making money but recent price cuts (30%) and dismal volume are a long term recipe for bankruptcy.

 

Not sure what to do with this but it is semi-germane.

SpaceX is blocking Starlink in Taiwan. This contravenes the SpaceX contract with the US military.

This seems to be a case of immutable barrier is hit by giant object.

Gotta say, I have zero respect for Elon's politics but he sure is fun to follow. Lol.

 

China's information opacity makes it difficult to know what is going on there. The 90% drop in tourism doesn't suggest a minor slowing of growth. It seems more indicative of a complete crash.

I think we can forget the 9-10% growth slowed to 4-5% line. That has as much credibility as a Putin ceasefire agreement. This is a crash.

There are several more RE developers circling the drain. I won't bother with detains but we know Chinese RE is on fire.

Chinese EV builders are pretty much f'd. Expect several dozen more bankruptcies this year and hundreds next year.

 

I believe Country Garden is the largest RE developer in China with over 1M square meters under development. I believe they are (or were) larger than Evergrande. They are under petition for bankruptcy by their lenders. Court date in May.

Valke looks like they will not make their bond payments on March 11. Based on Evergrande, that won't be the immediate end for them but it will be wildly difficult for them to recover.

China is losing ALL of their biggest RE developers.

As well as the big players, there is a substantial list of smaller RE developers entering liquidation. I won't bother naming them but they are easy to find with a quick search, if anyone cares.

Reuters should be covering this information sometime in July.

 

Changshuo shutting down a plant in Shanghai. Wow.

They aren't going bankrupt, just relocating one of many plants in another country so they can return to the Apple supply chain (hopefully).

 

Meanwhile, Chinese government target of 5% growth in 2024 seems like pure propaganda. Time will reveal reality but the externaml optics of the Chonese economy is severe.