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Alf, CIO, Macro Hedge Fund. https://t.co/dPMyAKll7Q pic.twitter.com/cQ1UEKohNg
— simonthong aka kitty poo (@KittyPo80176717) August 16, 2024
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Let's take a step back.
— Alf (@MacroAlf) August 15, 2024
China joined the WTO in the early 2000s and benefitted from a wider access to global markets where they could leverage their internal competitiveness (read: low salaries) to gain shares – and they did.
But the inevitable demographics decline…
2/ pic.twitter.com/sR47pXgTcf
Between 2012 and 2016 the Chinese corporate sector took on most of the burden as companies tried to lever up their business models and expand operations in the West.
— Alf (@MacroAlf) August 15, 2024
But the second phase of the credit binge was driven by Chinese households.
Why?
4/ pic.twitter.com/s7bYtDM6LS
Lever up a lot, buy houses, prices go up, finally feel involved in the Chinese ‘’wealth creation’’ process.
— Alf (@MacroAlf) August 15, 2024
Property now account for over 60% of Chinese households net worth versus 23% in the US.
And that’s all fine until it’s not.
6/ pic.twitter.com/g9aBvH8x2E
The concrete risk is triggering the biggest balance sheet recession of the last few decades.
— Alf (@MacroAlf) August 15, 2024
When house prices start dropping, this hits the balance sheet of highly indebted households and developers causing them to sell properties to repair their balance sheets.
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With rates dropping in China while 10-year Treasury yields still hovering around 4%, interest rate differentials could widen further.
— Alf (@MacroAlf) August 15, 2024
The pressure on the CNY is building, and China is trying to defend the currency but a few cracks are appearing already.
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P.S. Enjoyed this macro analysis?
— Alf (@MacroAlf) August 15, 2024
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12/12
Chinese bank credit to the real economy is contracting. With bond yields at 21st century lows. Balance sheet recession. Population declining. China is the new Japan. https://t.co/yMu3uH7lCi
— Spencer Hakimian (@SpencerHakimian) August 15, 2024
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weehingthong 