The Chinese government announced a rip-roaring GDP growth number for Q1—18.3% up on the virus-ripped Q1 of 2020 when it seemed like maybe the world was coming to an end, at least in China. It was Q2 before things started to flip, and China recouped and rebounded while the rest of the world fell ever deeper into a pandemic morass that vaccines could resolve if everyone would only take them. The 18.3 number itself means not much given the depth of the locked-down crisis back then against which Q1 performance this year is being compared, but it is still a solid sign of recovery.
But then there is the world of debt, spoken of for so long as the Achilles’ heel of the Chinese economic miracle. The number of bond defaults by SOEs continues to grow, and now we have the problem of Huarong Asset Management, a key player in the SOE world, used for the past two decades to clean up the balance sheets of state banks and other entities—bad assets are transferred to Huarong which restructures them or sells them off cheap, roughly speaking. Huarong has assets of $260 billion, it has just announced a delay in the release of its 2020 results, and the markets have not reacted well. It is the old question of just what Those in Command will allow to fail to balance off SOE corporate efficiency and systemic stability, and the answer is somewhat more than before at the local government level. SOEs reneged on a record RMB 79.5 billion ($12.1 billion) of local bonds in 2020, according to Fitch Ratings, and the first quarter of 2021 was even more dire. But the central SOEs are another matter. So much is concentrated in these SOEs in terms of assets and economic power, and there is so little transparency. A big player like Huarong will of course not be allowed to fail. The key pillar of confidence for all the markets in China is the belief that such a company will always be bailed out. It’s a systemic dilemma.
In other news, Alibaba was fined a whopping $2.8 billion for abusing its dominant market position in e-commerce and all the online fintech and related companies got the message on toeing the regulatory line, loud and clear and big time. Also former US Secretary of State John Kerry and Biden advisor paid a visit to Shanghai for discussions on climate change, but also no doubt other topics.
It’s shaping up to be an action-packed year. But meanwhile, enjoy the weekend.