What I covered directly in the episode was a blog post by BlackRock and a tweet thread by Michael Pettis, which confirmed some of my views on the state of China today and their path in the near term.
BlackRock’s words are important as they represent what large capital pools think about China. From their post, we learn that Chinese export volumes are likely to fall by 6% this year and next, although they will increase by 3% in nominal dollar terms. The authors also note the dire demographic situation in China, saying it precludes the necessary domestic growth to offset the effects of shrinking exports. In a country with massive debt and demographic problems, this is not a recipe for economic growth.
“Recession is now looming for the US, UK and Europe. But this time, China will not come to its own, or anyone else’s, rescue.”
Michael Pettis , senior fellow at the Carnegie Endowment and professor of finance at Peking University’s Guanghua School of Management, seems to agree with the direction of the Chinese economy in the medium term. His tweet thread reveals the no-win situation facing the Ministry of Finance in China.
The finance ministry said state-backed entities are strictly prohibited from buying land by taking on debt. Pettis agrees with this ban, because “local governments [reversing] the decline in land sales revenue by setting up SPVs to buy land from themselves [as] a way for them to borrow money and pretend that the income was actually income from land sales.”
However, Pettis is emphasizing the same no-win scenario with the Treasury Department that the BlackRock comments did. Namely that Beijing has no room to stimulate. They crack down but offer no help.
“The MoF stopped them from falsifying income without addressing the reasons why they had to do it.”
Pettis continues:
“Beijing must know how difficult the circumstances are that local governments are facing, and yet is not doing much to help. I think we are probably seeing the beginning of what will be, over the next few years, a very contentious relationship between local governments and Beijing.”
This does not bode well for Beijing and Xi, especially as US rhetoric, chip manufacturing sanctions and the arming of Taiwan gather momentum. There is a real existential threat to the emergence of the Chinese Communist Party.
European energy non-crisis?
We had Andreas Steno on the program a few weeks ago, because I wanted to hear his sober analysis of the European energy crisis. He was the one analyst I saw pushing back against the panic narrative.
He’s back in the form of a tweet thread this week and on the show I quickly read through the highlights. They are:
Natural gas storage is almost full in Europe far ahead of schedule.
Energy prices are quickly coming down to normal.
There is a huge backlog of floating natural gas ships off the coast of Europe waiting to unload.
What struck me about this analysis is how much it reminded me of the oil futures crash in April 2020. At that time, oil storage was full and tankers were moving around the world – also full. There was simply nowhere to take delivery of the futures contracts, so holders had to sell at any price, leading to a flash crash to zero.
Could we see the same in Europe this month? Not quite yet, but it’s at least a possibility. What a clown world that happened. From massive record highs to a zero price is a possibility within a few months.
This is a guest post by Ansel Lindner. Opinions expressed are entirely their own and do not necessarily reflect the opinions of BTC Inc. or Bitcoin Magazine.
