China: Did the first Domino just fall in GFC2?

March 8, 2014 admin Australian Housing, China 19

As widely anticipated, troubled Shanghai Chaori Solar Energy Science and Technology Co. failed to make the scheduled interest payment on a bond this Friday, 7th March 2014. Chaori could barely scratch together five percent of the 89 million yuan due. Unlike Credit equals Gold No 1 no one stepped up to bail out Chaori.

While small, some describe this as a “Watershed” or “Bear Stearns” moment.

The default in the PV Solar Cell Manufacturer is expected to mark the first of many onshore bond defaults for China that will occur in industries suffering from overcapacity such as steel, nonferrous metals, coal, renewable energy & of course real-estate. The near default of Credit equals Gold No 1 on the 31st January resulted from a trust holding bad loans to and equity in coal miner Shanxi Zhenfu Energy Group who collapsed in 2012 and had since ceased production.

Some analysts, including ones from Bank of America, call Friday’s default a “Bear Stearns moment” signalling the start of the Chinese shadow banking crisis, much like Bear Stearns was to the US subprime crisis.

Overnight Copper prices posted the biggest decline since 2011 in heavy volume caused by concerns of slowing growth in China from rising debt and defaults.

The default is expected to accelerate the number of individual bond holders who have been assessing risk and seeking out “less risky” investments such as Australian & Canadian Real Estate. On February 11th, Canadian Finance Minister Jim Flaherty announced the axing, effectively immediately, of a 28 year old visa scheme attracting wealthy foreigners to Canada. On the other hand, the Abbott Government is set to expand our residency visa scheme to the Chinese in what some suggest may cause an even greater housing bubble and further destabilise the already distorted Australian economy at a time when the Reserve Bank is sounding alarm bells.

» Watershed moment for China markets with Chaori Solar bond default – The Sydney Morning Herald, 7th March 2014.
» China Gets 1st Onshore Bond Default as Chaori Doesn’t Pay – Bloomberg, 8th March 2014.
» China Bear Stearns Moment Seen by BofA in Solar Default – Bloomberg, 7th March 2014.
» Copper tumbles after China bond default – The Financial Times, 7th March 2014.
» Shunned Chinese buyers to turn from Canada to Australia – The Sydney Morning Herald, 24th February 2014.
» Visas for wealthy to be expanded – The Australian Financial Review, 8th March 2014.
» Credit equals Gold No 1. – Who Crashed the Economy, 29th January 2014.
» GFC2 – Will it be made in China? – Who Crashed the Economy, 30th June 2013.




19 Comments

  1. I wonder how many Australian investors, particularly SMSF’s, have been recently encouraged into Aussie property investment on the advice from the Real Estate spruikers that no matter how much you borrow to pay for property in Sydney or Melbourne, there will be plenty of ‘Billionaires from Beijing’ in the wings ready and willing to buy back from you double what you paid.

    I reckon this is the real ‘rocket’ driving our property market.

  2. They are really going for the housing boom aren’t they. The bigger it gets the more dramatic the collapse.

    Minsky’s theory has been used to model Australia and it suggests that housing has been in a large bubble for quite a while. When it breaks heavily indebted property owners will experience financial trouble which will flow through to the rest of the economy. I guess Abbott and his minions will try and blame the previous government.

  3. The dumb country. The US sells it manufacturing base and impoverishes its people. Australia’s one trick is to sell off its real estate.

  7. Hi Rory @ 5,

    To be fair you could say the same about,

    Julia
    Kevin
    John
    Paul
    Bob

    prepper

  10. A friend of mine just bought two investment properties. Another friend just bought another house to go with his other two investment properties. Another took out a loan backed by his house. Now my wife is nagging me to get an investment property as well, and she doesn’t see any reason not to.

    Maybe I should just drink the potion and get myself some debt too.

  11. Why is Charles Emerson Winchester the Thirds face on the Chinese bank notes ?
    After the Aussie 1990 ish recession, we all went surfing. Datsun 180 B with a couple of old boards tied to the roof.

  12. @10

    one of my investment philosophies is “if all the people around me (friends, relatives, colleges, etc) are buying IT, i am NOT, always avoid crowd.”

  13. @DX

    Yep, agreed: Speaking with a friend on Saturday: Family farm, big disagreement, farm to be sold, kids get nothing: Kids have to sell their own farms: Essentially the kids will have nothing:

    But the kicker: They don’t/wont sell their investment properties.

    When you sell EVERYTHING in an effort to stay afloat, but wont sell the ‘investment’ properties, you can be sure that delusion is alive and well.

    We’ve said it many times, but the more this goes on the worse the end result will be.

  14. As usual these bubbles are just looking for a pin. Yesterday New Zealand was the first developed country to raise interest rates. I can already hear the sound of real estate deflating around me. Next big pin Australian interest rates!

  17. @Skichaser:

    “The problem is superannuation is divorced from a buying a house so all governments have been able to convince Australian employees that they can’t touch their superannuation until a certain age.”

    The greater problem is that Aussies aren’t savers any more because they have super! What’s the point of having money that’s worth is determined by whatever government is in power, or whatever other entities feel it shouldn’t be ‘locked up’?

Comments are closed.