CHINA IS IN BIG, BIG FINANCIAL TROUBLE

It won’t be too much longer before China will put an edict out to cease all trade with Australia which will mean that all businesses now sourcing from the CCP will need to feverously commence negotiations with alternative suppliers and preferably Australian suppliers.

When the Chinese mega companies become huge financial burdens to the country, there is only so far the government can go relative to bail-out strategies.

China is already out of control with their financial management systems where businesses have for some time now serviced debt with internal IOUs to the tune of $billions.

As can be seen by the article below, this mega developer which uses huge levels of resources and in particular steel, is in an unsustainable operating position.

In reality, Evergrande is not the only corporation in this situation. It is becoming common throughout China.

In recent days Chinese mega developer Evergrande has been making headlines, as it heads for a corporate restructuring that could see investors lose tens of billions of dollars.

To put Evergrande’s immense size and importance to the Chinese economy into perspective, its debts amount to around $US315 billion ($A432 billion).

That is more than three times the entire debt load of the New Zealand government and around two-thirds of all outstanding Australian federal debt.

As Evergrande struggles to pay its creditors, mum and dad investors have stormed the company’s

Evergrande is not the only Chinese property developer in major distress. Across a long list of China’s biggest property developers, a significant number are in similar financial trouble, with their collective debts in a distressed state exceeding more than $US500 billion ($A686 billion).

China’s Lehman Brothers moment?

As speculation over Evergrande’s fate continues to build, there are concerns that a disorderly default on its obligations could trigger a financial crisis in China that could spread throughout the rest of the world.

If Chinese investors who own Australian property are forced to liquidate their assets in order to cover bad debts, some suburbs with a high proportion of Chinese ownership could see a significant increase in the number of properties on the market.

But perhaps the most immediate blow to result from a crisis in the Chinese property sector would be the reduction in demand for Australian iron ore.

But if Xi is willing to roll the dice on truly reigning in excess in the property sector and Chinese financial markets, Evergrande’s woes could be just the beginning of a more protracted crisis with consequences that could echo throughout the world and particularly Australia where Chinese property investors will need to quit their investments to stay afloat financially.

Good advice would be to consider any aspirations of doing business with China but certainly place a high priority on reshoring any product/s that you currently get from there.

You May Also Like…

Business Failures

In my experience managing and consulting to multi nationals, businesses usually fail because managers fail. This may...

Structuring an Effective Board

Back in 2017 I gave a presentation on 'Structuring an Effective Board' which covered important aspects to ensure that...

X
wpChatIcon