How the trade war masks the real problems…
The ongoing trade war isn’t just about tariffs.
It never was, according to Jim.
He argues the trade war was more about ending China’s illegal coercion of intellectual property from the US.
Now, there’s another side to this argument.
That is, while the US is in discussions about tariffs and challenging Chinese IP laws, China is masking a bigger problem.
The Chinese financial sector is on the verge of bankruptcy. Only two months ago, I explained that Chinese banks are selling off distressed debt.
In spite of assurances from government officials that everything is under control, there’s still a massive US$34 trillion in total government and corporate debt.
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Last year, more than 119.6 billion yuan (AU$24 billion) of Chinese corporate bonds were defaulted on. That’s a fourfold increase since 2017.
And now there’s US$1.4 trillion in distressed debt going at fire sale prices.
These defaults are coming from the corporate sector and include both US dollar-denominated and local currency bonds.
But, as Jim points out today, it’s not just the Chinese financial sector that’s a concern. All the talk about the trade war is masking a slowing Chinese economy and a failing banking industry.
The key takeaway? China needs Chinese exports to prop up the economy.
Until next time,