So by now, you’ve likely figured out that this newsletter will be sporadic, depending on outside work.
With my marketing hat on, I know that’s about the worst way to grow a reader base. But I’m not particularly worried about how many people see this yet.
Instead, I’m interested in crowing about my prescient predictions.
I told y’all to wind down China positions… and then the Shanghai index crashed. Then recovered. And now is resuming its crash.
Pick your reason. The crackdown on tech companies. The looming Evergrande disaster. The coming debt disaster (did you know that Chinese government revenue is nearly 9% land sales? That’s not sustainable — especially when a real estate bubble bursts).
Or could it be China’s crackdown on bitcoin and cryptocurrencies — destroying a burgeoning industry of crypto miners, and locking China out of the future DeFi financial system?
Sure. Any of those. All of them is more like it.
The important thing to remember is China has just passed its boom prime. Built on real estate to a much greater extent than usually acknowledged (up to 30% of China’s GDP is real estate-related), a correction in that area will quickly snowball into systemic problems.
What problems? Don’t know yet. Just as we weren’t sure what would happen in 2008 when Bear Stearns and then Lehman failed.
But make no mistake. The failure of Evergrande is closer to a Lehman moment than a regular ol’ bankruptcy.
Indeed, it’s likely to be even worse, given how real-estate dependent China’s GDP and government revenue is.
Eventually recognizing this, China has kicked the can down the road by taking a $1.5 billion government stake in the company.
But that won’t solve anything. It barely buys Evergrande a few months.
And even if you think the slow-motion default of China’s major real estate developers is no big deal… well, plenty of analysts think you might be right.
In that China’s energy problems are likely an even larger issue.
After all, can’t sell all those cheap factory-produced products around the world when your factories can’t run.
Fear-based marketing — and most politics is marketing — always works well. But it only works if you’ve got something to be afraid of.
Consequently, we’ve made China into a boogeyman.
But the country is facing real, huge, systemic issues.
It will remain a major player on the world stage. And will likely continue to grow its influence in its corner of the world.
But we’re in no danger of falling behind China.
Right now, China is in greater danger of falling apart.