The lack of transparency on a system generates endless speculation, and there are always people who support both sides of the argument. But the evidence supporting the view that China is facing tough times is becoming pretty persuasive. This week there was a report that so far this year there have already been offshore bond defaults by Chinese companies totalling $20 billion, compared to $9 billion for the whole of 2021. Property developers account for almost all those defaults, and the situation of the property sector is not getting any easier any time soon. There have been many reports of middle class apartment buyers refusing to make mortgage payments, which is a big deal, unprecedented and a rare case of an action occurring simultaneously in a number of places around the country. This is an unsettling scenario from the perspective of Those in Command, and measures have been quickly announced to ensure that funds are provided to the developers, who otherwise need the mortgage payments to finish construction of the apartments they have pre-sold. The middle class has to be kept from getting uppity.
The system has an enormous ability to finesse problems and defuse local crises, but there’s a lot of stuff out there right now, and their undoubted capabilities are being fully tested.
Another sign of the times was the massive fine levied against the ride-hailing operator Didi—$1.18 billion—for misuse and mismanagement of the data it collected from hundreds of millions passengers. The message to all tech companies is clear—stick as close as lips and teeth to the agenda of the system.
There are virus outbreaks in Guangxi and Gansu, which removes some PR pressure from Shanghai. The numbers are still minuscule but the impact on life and economic activity locally will still be massive due to the dynamic zero policy, which is clearly very much in force despite talk of flexibility. We will see.
All this raises the question of the big 20, the once-in-five-years meeting later this year, and how it will go. Will Mr Xi take a third term? Will there be any sense of a balancing presence in the top leadership? And how would the markets react to various scenarios? It is all unknown. In normal times, there would be some clear indications by now of how things will play out, but right now, our general sense, shrouded by thick mist, is categorically that … it’s not clear. Which is in itself interesting.
In other news, the investment banking subsidiary of HSBC in China Qianhai has announced that a Communist Party branch has set up inside the company. Just mull that for a minute.
And have a great weekend.