Submitted by Taps Coogan on the 1st of June 2019 to The Sounding Line.

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Grant’s Interest Rate Observer founder and editor, Jim Grant, recently spoke with Christopher Balding, associate professor at the Fulbright University of Vietnam and long time China resident, about the real economic and geopolitical landscape in China today.

 

Some excerpts from Christopher Balding:

“…Pre Xi administration, students would talk to you and faculty were quite open and things like that. It was a relatively different environment. I think what made me decide it was time to leave was I noticed that even the colleagues and friends that I thought were, let’s say pro-Beijing or pro-(communist)-party, even they were becoming concerned about how much things had changed in China and how worrying the environment was in China at universities and in general…”

“…I am not ready to say contraction, but I would lean much more in the direction that (Chinese) economic growth is in the low single digits at best: 1%, 2%, maybe 3% at the outside. If you look at individual products on the consumer side, nothing is growing and a bunch of things are contracting quite significantly. Even in real-estate there is significant problems… Just about the only industry that is growing robustly is the steel industry and there is a lot of money going into real-estate construction… The GDP data, I think everyone has just accepted that it is inaccurate. I think what’s worrying is over the years, because of the debt buildup, you’ve seen Beijing give themselves much much less room to operate. They haven’t addressed these problems early on and so now the entire system is so incredibly tightly wound that they’ve given themselves less options. They can’t go out and do a large stimulus like they could in normal times. Devaluing is going to be very difficult… They can’t devalue by any significant amount because of the amount of US dollar debt they have coming due in the near future. If they devalue, then foreign investors aren’t going to be inclined to roll that debt. So they’ve basically backed themselves into a corner… I don’t meet anyone in China who says ‘Oh we’re doing fine, don’t believe the headlines…'”

“If you think about even a small percentage of the Chinese population says ‘I want to move to Australia,’ their foreign exchange reserves are gone within the blink of an eye… This idea that China is somehow a frugal saving nation that doesn’t have a lot of debt is, at this point, flat out wrong. Even in US dollar debt terms it’s not a large number relative to the Chinese financial system but it is very large in absolute terms and that creates these problems. They have roughly $1.3 (to) $1.4 trillion of (US denominated) debt coming due over the next year… Part of the reason that they can’t devalue over the next 12 months is if even there is any type of significant devaluation, if even… a quarter of those roll-overs they have to do over the next 12  months (fail), bankers start getting nervous, all of a sudden you could start a domino effect or you’re going to burn through reserves pretty quickly… They have a little more than $2 trillion in US denominated debt… so that $3 trillion (of reserves) looks a lot smaller than it actually is…”

“…Huawei likes to say that it is a private company but it in reality it’s not. Huawei is actually owned by the Employee Union… In China the way things work is there is one national union. The gentleman in China that currently heads this union is very close to Xi himself… He is a bit of an enforcer… He runs this union for Xi… This makes Huawei effectively a state owned company of China…”

There is much more to the interview, so enjoy it above.

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