Tuesday, June 16, 2015

Waiting for China's Somprasong Land.

While doing a follow up on the Kaisa default, I came across a Financial Times article titled "Corporate China Goes on a Borrowing Binge", with the sub-line "Despite Some Alarming Numbers, Fears of a Debt Crisis have Dimished".  I couldn't help but feel a sense of déjà vu.

The alarming numbers that the article is referring to is the fact that Chinese corporations have issued $42 billion between the start of 2015 and the end of May, which is the highest year-to-date amount on record.  The total outstanding value of corporate debt is also 11 times higher than it was in January, 2007.

The sense of déjà vu I felt came from the way the business press talked about Thailand in the 1990s.  Below there are two quotes from newspaper articles, one discussing China in 2015 and one discussing Thailand in 1998, after the crash.
"Seven of the top 10 Asian borrowers in the US dollar high-yield market with bonds outstanding are Chinese property developers with low credit ratings. Combined, the group has raised almost $20bn in that market alone."  (Sender, Henry.  "Corporate China Goes on a Borrowing Binge."  June 9, 2015.  Financial Times.)

"The Thai economy was the global capital markets' flavor of the decade, a much favored venue for international investors in search of high returns. But by fixing the baht's exchange rate, the Government encouraged Thais to accumulate debts in foreign currencies. Worse, by fixing the rate in terms of dollars, exports became less competitive as the dollar soared."  (Passell, Peter.  "The Precocious Thai Economy Receives Its Comeuppance."  August 14, 1997.  The New York Times.)
Interestingly, both articles took the time to critique capitalism of some sort.
"This puts an ironic twist on the conventional tale of global capitalism undermined by speculation and short-term thinking. Narcotic-like inflows of capital may have lulled Thailand into complacency. But it was the reluctance of the private market to act that allowed the Thais to dig themselves so deep a hole."  (Passell, Peter.  "The Precocious Thai Economy Receives Its Comeuppance."  August 14, 1997.  The New York Times.)

"For investors in search of high returns, the lure of the Asian high-yield market remains strong despite some of the troubling fundamentals. Their belief in capitalism with Chinese characteristics is an impressive thing."  (Sender, Henry.  "Corporate China Goes on a Borrowing Binge."  June 9, 2015.  Financial Times.)