What the World Owes China Inc
The crisis that comes after this crisis…
Shuttered indoors we’ve done nothing but chew on the crisis that landed squarely at our feet in March.
Did Australia do the right thing?
We’ll never know. It’s that simple.
The option that was given to us has led to an outright crashing of the economy.
The other choice — the one the politicians didn’t go for — was to let the virus take its course through the community and see who was left standing at the end.
Quite frankly it was a no-win situation.
But more to the point, we were never going to be able to take the right course of action because the data we had was bad.
When the virus was entering our shores we had wildly inaccurate data to build scientific models on. While I’m all for criticising politicians, they had nothing to go on but lies from WHO and fabricated information from the Chinese Communist Party (CCP).
And yet today, as we stumble out of forced closures, Aussies are working out how to get the economy back on track.
The thing is, the impact of the coronavirus isn’t the only secret the CCP is keeping from us.
You think COVID broke the economy? You ain’t seen nothing yet…
Debt trap diplomacy
A map of future problems.
Not today’s problems.
Today’s problem is finding new employment and working out how to pay your bills.
But don’t ignore the map I sent you yesterday.
It shows you where the future problems are coming from.
Missed it? Here it is:
Simply put, it shows you all the countries in the world that China has lent money to.
You’ll notice that the US, Canada, Western Europe, Australia, and New Zealand are obviously absent on the list.
Oil-rich Saudi Arabia hasn’t received a loan either.
Yet virtually every other country in the world — more than 150 of them for a matter of fact — has some sort of debt arrangement with China.
As I pointed out yesterday, the total dollar value of these loans is unknown. The conservative estimate is US$1.5 trillion. The higher end is US$5 trillion. The International Monetary Fund has said it could be even higher, because the CCP don’t disclose their lending to companies or countries the way the Western world does.
In other words, it’s hidden.
The deals are done privately. Each deal between a state-backed Chinese firm and private or government business in another country is between them.
And often the rest of the world doesn’t find out ‘til it’s too late.
Sri Lanka learnt this the hard way two years ago when one of their shipping ports were seized as repayment for a loan. On paper the business case to fund the port never stacked up. Although CCP supported news outlets are now telling the world the port is thriving under Chinese management…
However, that port seizure was two years ago.
And it just so happened that many of the countries that owe China money were watching what happened…and the idea of handing over valuable assets to another country now doesn’t seem like such a good idea.
Already Chinese firms have ‘suspended’ debt repayments for 77 developing countries.
However, that figure is dwarfed by the 90 countries that have gone hat in hand to the IMF asking for help to pay their bills.
And with every country that seeks help from the IMF, a clearer picture of how much debt belongs to China is being revealed.
It’s worth noting too, that China has dismissed the idea of full ‘debt forgiveness’. But they have openly said they will negotiate with countries.
In April this year Kyrgyzstan managed to reschedule US$1.7 billion worth of repayments.
While China makes noise about willing to make private deals and ‘talk’ about foreign debtors, it’s more than happy to manipulate their financial system internally.
Two days ago, the Wall Street Journal wrote that Chinese firms aren’t defaulting on domestic bonds, rather they’re asking bond holders to wait for their repayments. And even to ‘forgo the right to redeem bonds early’.
Which, by the way, is at odds with the free market principles they pretend to replicate in their own local markets.
If Australian, European, and North American companies couldn’t make their bond repayments, they would ‘default’ on those bonds and be allowed to go bankrupt.
Whereas in the Middle Kingdom, officials step in to twist the rules to ensure nothing goes against their plan.
Believe it or not, the biggest issue here isn’t that Beijing supports and intervenes in market operations.
The greatest risk of all is what happens if the CCP take advantage of the virus, and start using this as a way to strong-arm themselves onto other countries’ assets?
The costs of buying influence
For a long time, Western markets have ignored the dragon’s growing influence.
Simply because it suited us.
As China continued to benefit from capitalism, we believed their leaders would follow us into free market ideals.
Not only has that not happened, but the increasing rhetoric from Beijing proves the opposite is happening.
The CCP didn’t come to make friends. And it’s at risk of losing face to its people it swore economic prosperity to.
Essentially, China’s global reputation is not only about to be questioned but also be challenged.
And that’s put all these hidden debts in the firing line.
Not only is Australia in the process of pondering its relationship with China, but the entire global financial system is about to discover what it’s made of.
And we aren’t going to like the answer.
In an attempt to secure what resources they needed, the CCP actively encouraged a two-decade spree to countries that needed money and that the West wouldn’t back.
Make no mistake, this wasn’t to help lift other countries out of poverty. This was about securing what China needed.
The problem from here is, this global lending spree for resources they needed could have continued unnoticed.
But now this virus has stopped the world in its tracks.
While stock markets around the world are acting like nothing happened (incidentally China’s major index never sold off heavily), economies are going to be crumbling under the weight of their new government debts.
The question isn’t when will someone start blaming China, it’s how China acts while we are dealing with a health crisis of their creation.
Path to financial destruction
From here on in, it comes down to what the CCP does next while we are distracted as we rebuild our economies.
Does China start just recalling in its debts? Does it go in and play hardball?
Is the Sri Lankan port seizure a taste of what’s to come?
The CCP can encourage countries that owe them money to agree to new, longer terms to pay off the loans. Or if the CCP feel threatened, it’s highly likely they’ll move to taking over more assets — like ports and mines — as ‘repayment’ for loans.
Remember, we can’t accurately track the loans for these. So, we’ll only find out about the ones that get swallowed up in Beijing’s fury after the event.
The other option is that these many, many debtors come clean. Then go hat in hand to the IMF for some sort of bailout. Together.
By banding together and seeking the IMF’s help, no doubt the IMF would step in and do the dirty work on behalf of these indebted nations.
The biggest problem is, if these debtor nations do band together, the Western world is going to get an ugly wake-up call to how deep this debt runs.
All of this could be the precursor to the ‘reset’ Jim has been writing about.
Make no mistake, too many people are looking at today’s problem. The one we can see. The virus that forced us inside.
Yet the real crisis is the one we can’t see, and it’s getting bigger by the day.
Until next time,