Evergrande I Kina kan gå i konkurs (300 miljarder dollar)

Extreme poverty, deep poverty, abject poverty, absolute poverty, destitution, or penury, is the most severe type of poverty, defined by the United Nations (UN) as "a condition characterized by severe deprivation of basic human needs".

China as a whole needs to deleverage -- meaning, to slash the proportion of borrowing in relation to output -- in order to start making productive investments again. In that general sense, Likonomics is on the money.

But in order to pay off debts, companies have to be making money. If they don't, they default.

That's a big problem in China right now. Growth is already slipping fast, leaving businesses generating less and less cashflow to cover their debts. Cutting lending will start to expose this insolvency even more. Untold numbers of local government investment platforms, real estate developers, and factories, to name a few, will go under.

True, postponing writing down bad debt will only make things worse. But a chain-reaction of defaults will cause growth to implode. And waiting for unproductive assets to start making money again could take years -- even decades. That's what Charlene Chu, an expert on Chinese debt at the ratings agency Fitch, was referring to when she recently warned of "Japanese-style deflation." In other words, with far more factory capacity than it needs, consumption will fail to keep up with production, driving prices down. Meanwhile, companies left standing will use profits to pay off their debts, which will suppress wages, restraining consumption even more.


Ending stimulus and deleveraging would both deprive banks of the interest income that they need for revenue and, worse, leave them empty-handed as their debtors go bust. What's more, just as that's happening, Likonomics would loosen the government's hand in setting interest rates. China's banks are perilously unprepared for that.

Currently, the interest rates on bank deposits are set by the government, and are kept artificially low, which gives banks a nice cushion of money to lend with. Letting the banks set rates themselves would mean they'd have to compete for depositors, reducing that cushion.

This would be great for household consumption. Shifting wealth from the state and its patron companies would allow households finally to start feeling wealthy and secure enough to consume. As we've discussed many times, that's critical in the long run.

The Plaza Accord was a 1985 agreement among the G-5 nations—France, Germany, the United States, the United Kingdom, and Japan—to manipulate exchange rates by depreciating the U.S. dollar relative to the Japanese yen.

The examination, which is led by China’s top anticorruption agency and centers on 25 financial institutions at the heart of the Chinese economy, is the most extensive of a sector Mr. Xi has been suspicious of since coming to power nearly a decade ago. It is part of his broad effort to steer China’s economic system away from Western-style capitalism in the run-up to a leadership transition late next year, when Mr. Xi is expected to sidestep convention and continue his rule beyond the usual two five-year terms.

The financial-sector scrutiny comes as Beijing is also trying to address the economy’s dependence on debt-fueled construction sprees, which is prompting turmoil in China’s property sector. By expanding his economic campaign, Mr. Xi risks unleashing dynamics that could severely cut into growth in coming months. Amid the uncertainty, many banks are already pulling back from lending to private developers and other businesses, analysts said.

Mr. Xi’s goal, some officials said, is to make sure the party exerts full control over the economic lifeblood of the country, preventing the financial sector’s capture by big private businesses and other power players that threaten the state’s influence.

Details of anticorruption probes are often murky. During his early years in power, Mr. Xi used a wide-ranging campaign to both clean up a party plagued with corruption and to take down or sideline political rivals to secure his hold on power.

They take risks that some traditional lenders have shunned, going as far as creating investment funds for firms such as Evergrande. For instance, when the developer needed money for projects in 2015, according to people with knowledge of the matter, it received a pledge of about $3 billion from Citic. Citic then folded the funds into investment products sold to individual investors, promising a high rate of return funded by the loan payments from Evergrande. A potential default by the developer would put the investors’ money at risk.

Regulators, including China’s central bank and the top banking, insurance and securities watchdogs, are also coming under scrutiny for any signs that they might have been negligent in supervising companies or become too close to industry players they are supposed to regulate, according to the people familiar with the plan.

One risk for Mr. Xi and China is that such broad scrutiny could make the country’s financial system even less accessible for smaller private companies already struggling with a lack of financing.

The last time Mr. Xi conducted scrutiny of the financial industry was after the 2015 stock-market crash, which led him to send public-security officials to China’s top securities watchdog and state-backed brokerages to investigate whether regulators worked with the firms to propel the stock selloff in a suspected “financial coup” to destabilize the Chinese economy and Mr. Xi’s rule.

Enter Evergrande—and for that matter, China’s entire real-estate industry. These firms have kept building, and building, and building some more, but the country doesn’t need everything that they build. Rhodium Group, a research firm, estimates that China has enough unsold property to house 90 million people, equivalent to the entire population of Germany, and then some. And property is only one sector that suffers from this kind of excessive exuberance: According to the data provider Qichacha, China has more than 300,000 companies engaged in the new energy-vehicle industry, some of which are propped up by the state, and which in any case number far too many to survive. This recurring overinvestment has helped fuel a potentially destabilizing surge of debt. Data from the Bank for International Settlements show that debt in China has increased 13-fold in the past 15 years, and is now almost three times the size of the entire economy. A significant chunk of those loans—perhaps a quarter—are unlikely to ever get repaid, because the underlying investments have gone sour.

Perhaps the Evergrande crisis will shake China’s leaders out of their complacency. Yet even if that happens, they’re unlikely to choose the right solution—deeper economic liberalization. When freer markets are allowed to direct capital to worthy investments, rather than state priorities, and boost the productive powers of industry and workers, growth will return to a healthier trajectory.

But free-market reform stalled long ago. If anything, Xi is shifting policy in the exact opposite direction—toward a heavier role for the state and the party. ”Xi knows that [economic liberalization] would require him to relinquish control in ways that he is not remotely prepared or willing to do,” Matt Pottinger, a former Trump-era deputy national security adviser who is now chair of the China program at the Foundation for Defense of Democracies, told me. “He is preparing the economy for a new phase of slower growth where the party asserts greater and greater control over the economy. It’s all about politics before growth.”

Xi may think he can outdo Mao and micromanage the economy to achieve better results than entrepreneurs and foreign investors. Private business, though, is the true source of innovation in China, and by sidelining it in favor of the dysfunctional state sector, he’s running the risk of worsening the economy’s most damaging problems—wasteful investment and feeble productivity. Xi’s state-led programs already have a record of encouraging bloat. The excessive investment in the electric-vehicle sector is a result of Xi’s promotion of the industry through state subsidies and other supportive policies.


China can ill afford such missteps. The populace is still relatively poor—per capita income, at $10,550, is a mere one-sixth that of the U.S.—and worse still, it’s aging rapidly. The declining workforce automatically detracts from the economy’s growth potential. (Hoping, probably vainly, to reverse the trend, Xi’s government is moving to limit abortions, a typically heavy-handed approach to the country’s demographics.)