Darius sat down with Anthony Pompliano last week to discuss China’s economic landscape.
If you missed the interview, here are three takeaways from the conversation that have significant implications for your portfolio:
1. The Evergrande Debt Default May Have Spillover Effects on The Broader Chinese Economy
One of Evergrande’s subsidiaries recently defaulted on nearly 600 million dollars worth of principal and interest payments.
The implications are significant for two reasons:
- Evergrande has 328 billion of debt outstanding, the largest of any property developer in the world.
- Evergrande will be in court next month to discuss a potential liquidation.
A bankruptcy of Evergrande’s size could lead to knock-on effects for the Chinese economy.
2. If China Does Not Issue Large-Scale Fiscal Stimulus, They Will Likely Remain In Their Liquidity Trap.
China and Japan supplied trillions of dollars in global liquidity from Q4 2022 to Q1 2023, a primary factor in the BTC and stock market recovery we have seen so far this year.
But if China does not issue large-scale fiscal stimulus, they will likely fall back into their “liquidity trap”:
- For the last decade, Chinese growth has been below trend, with the exception of early 2021.
- China has also struggled to generate inflation.
Today, China’s economy looks very similar to Japan’s from the early 1990s.
3. Just Because The Chinese Economy Has Downshifted From A Growth Perspective Does Not Mean It Will Stop Demanding Energy Products
The volume of Crude Oil imports is near all-time high levels established in 2020.
Conversely, the volume of Copper imports is down 38% from the 2020 highs.
This is significant because Crude Oil creates inflation across the global economy, while Copper more closely signifies underlying demand for materials and goods and is correlated to growth.
That’s a wrap!
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