It is quite possible that one day, when we look back at the 2020s, we will say that the $300 billion collapse of the Chinese real estate giant Evergrande was our Lehman moment, the great reversal of Chinese society, in which the negative demographic forces, the massive misallocations under the interventionist economic system, paralyzed the entire economy. At the time of the fall of Evergrande, the Chinese real estate market was inflated to the largest submarket in the world with a 7% share of the global economy as a result of investment guarantees and government subsidies. And just as during the Lehman crisis, when structured securities were used to disguise credit risks and find enthusiastic investors worldwide who emptied their pockets with a greedy smile, global capital flowed into the Chinese real estate market almost without limit as if there were no alternative. ''After all, growth is infinite here.'' People had almost got drunk on the apparent omnipotence of the Communist Party (CCP), which had the boundless Socratic wisdom to consistently grow the economy by 5% every year. I had always wondered why the economy wasn't simply allowed to grow by 8% or ten or 30?
No, I'll be honest at this point: I've never invested in China in my entire life. I was much more interested in another giant: India! For me, India is the systemic winner - it is a largely democratically organized society with a stable and even growing demographic. Of course, and you can't beat about the bush, state interventionist actions are also commonplace here - the last major example was certainly the currency annulation of 2016 in which people were robbed of their money overnight with a following lovely bank run on hand (good pitch for the bitcoin marketing deparment).
Swing State India What has fascinated me about India for years is the country's geopolitical orientation. President Modri is continuing the tradition of the geopolitical pendulum in which the country moves smoothly back and forth between the various blocs. The Indians know how to integrate themselves into the BRICs region, but also how to operate politically within the G7. They are the true global players - political cosmopolitans, equipped with the necessary pinch of power-political cynicism. So they open their doors to everyone: whether Russian oil or German mechanical engineering - everyone can find their sales market here and at the same time a complementary import sector. It is precisely this supple flexibility of the giant, probably only such a giant can afford this openly displayed opportunism, which makes the nuclear power appear ever more attractive to circulating capital as a port of discharge. Meanwhile Kashmir remains one of the few open flanks and unanswered questions, an open wound in society, which above all the former colonial power England continues to activate as a gateway for imperial power politics when it seems useful. Yes, yes, it is difficult to give up old possessions for good! (Where does the English Prime Minister come from again)?
What to do with it? But, as always, when we lack information or we are not sure about something, I stick to the old adage: if you're in doubt, zoom out! and: look at what the market, that incorruptible oracle in the long run, whispers to you. And the market speaks unmistakable words: the Indian stock market, its bond market, the stable growth, the low national debt 58%) - all of this oscillates harmoniously in a steady state equilibrium. The real economy is growing at over 6% a year, demographics are stable and the population is growing, while things are no longer looking so rosy in China. The CCP and its ''free'' media traditionally provide us with the most accurate and credible information about the economy and society. If we zoom out here too, we have to realize that China seems to have been in a deflationary spiral for some time. The CCP's panic-like reaction to the stock market's decline with intervention packages worth billions, the ban on short selling and the order to sovereign wealth funds to buy Chinese shares has contributed to a veritable flight of capital. The past few months clearly raise the question: is China still investable for us as private individuals? After all, we are not Jamie Dimon, who can discuss his ingenious investment strategies (and taxpayer-backed guarantees) with President Xi over an evening chat.
Unknown culture Naturally, we Europeans and North Americans, unless we have been lucky enough to travel to the country for a longer period of time, are completely unfamiliar with Indian culture, its magnificent and rich history, in which even Alexander the Great immortalized himself in a short chapter, the ancient philosophy and customs of life, such as the caste system, which is forbidden but still operates in the obscure background. But that doesn't mean that you can't approach it at the moment. Indian Philosophy is always worthwhile, which is why I would like to recommend ancient Indian literature such as the Vedas to everyone as a form of quietist literature, but its foreignness is no reason not to approach it intellectually with an open mind. After all, we also encounter Chinese culture and its peculiarities with an equidistance and a head full of question marks.
The Indian Decade? Without wanting to go too far out on a limb, I would like to take the risk of making a prediction at this point: the coming decade will be the Indian decade. But don't worry: the United States will form an appropriate counterbalance and, once it has resolved its internal conflict, will get the world back on its feet with the free market economy and the principles of capitalism!
Alternate take : The Chinese government has done what Western nations have refused to do and staged a managed collapse of their real estate bubble.
It's a good thing that Evergrande has gone into bankruptcy and allowed to fail.
China will be absolutely fine.
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21 sats \ 3 replies \ @fm 6 Feb
I also think they will be fine.. they have it all to recover Many small investors will lose some money.. But just like the PIGS here in EU when 2008 hit.. Difference is they have the numbers to recover
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The panic-like massive intervention of the CCP is sth I wouldn't underrate
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21 sats \ 1 reply \ @fm 6 Feb
i mean,
You know how FIAT works,
You delete some balances and ready to go.. When you have a massive productive laborforce, you can fix it.
This is why USA, Italy or Japan can have 200% of debt and not being shut off.. They have something to recover.. China has a lot of manpower.. And A LOT of US debt
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Absolutely. But I still have difficulties waghing the demographic effect. It looks like a collapse to me which could put massive deflationary pressure on the econ and credit (Japan?)
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What is an example of fine and not fine? How would you know if you were wrong?
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The capital market speaks differently
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China operates under a system of industrial capitalism and not financial capitalism as in the West, which is why China allowed (and prompted) its RE bubble to burst; financial bubbles hurt a productive industrial base.
Consequently 'the capital market speaking differently' is probably a good sign of health for China and that it's doing the right thing. Work is rewarded in China, not speculation (ok, some speculation is rewarded too). Western markets (heavily) favour speculation, not work.
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yes indeed. the financialization of the western economy cannot be denied. you have a point. but a lot of capital has been destroyed by centralized control in China. and i cannot imagine that the immense demographic distortions will not turn into deflationary pressure scenarios. china is also part of the fiat system
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I agree with you that pressure will exist and affect worlod economy, But, same as happended here, they will recover.
In 2008 the bank directly wiped up 100K from my family savings.. Just because.. ( maybe 2009..cant remember the exact dates)
Same will happen to small investors in china.. They get .10 cent on their dollar and sent to work again..
I have many Indian friends from grad school and knowing them does make me quite bullish on India's future. However, from an investment standpoint, the low priority given to punctuality would give me pause, as would the extremely meddlesome government. Democracy and free markets are very different things.
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Same setup, but I wonder: how much of the bullishness is bc the Indians you met were among the hungriest and most accomplished, and set loose in the American ecosystem, which is still (relatively speaking, in most ways) highly functional?
I find it personally difficult to calibrate things like this. The US being a magnet for people like this used to be such a crucial advantage. We're well into fucking that up, of course.
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Of course, that's right. An earlier draft of my comment had the phrase "to whatever extent they're representative" in it.
However, I think crude inferences can be made from comparisons between the students from different cultures. We're all highly selected in that environment, but there are definitely differences that jump out and it seems reasonable to attribute those to the home cultures.
Something that helps with that for me is knowing people from different class backgrounds in India and China, specifically, so I can partially adjust for that variable.
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458 sats \ 1 reply \ @TomK OP 6 Feb
yes, that's right. but in my opinion, as an outsider, India is taking a good path. the integration into various spheres of political and economic power in particular should keep this country on track in the long term
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I'm more than willing to bet on India's continued success, but I think there will be times when pathologically punctual free market westerners like us look on India's economic performance with confusion and frustration.
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387 sats \ 0 replies \ @xz 6 Feb
Interesting take.
There was an interview on Hidden Forces #350 with David Goldman. He gave considerable historical context on why PRC will continue to make inroads through communications and other infrastructure projects, and posits that this will balance demographic problems (I guess through automated large-scale manufacturing cornering markets, mainly continued expansion into SE Asia, the African continent and BRICS.
While I think he has a point to the less appreciated pragmatism and history of successes of large infrastructure projects, and possible demographic resilience, I do think the case you've made is the other under appreciated elephant in the room and India could integrate itself more diplomatically.
I heard talk that Evergrande is being dealt with in Hong Kong and the fallout is still pending. I'm not so sure that this fact makes a difference to containment of the unwinding of debt in the system, apart from it will help to sound that way because the bankruptcy is offshore and somehow it's not directly connected to China's real estate.
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I also have a huge believe in India. I am bullish 🇮🇳
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