How China has affected the future of Evergrande, iron ore and Australia

The economies of China and Australia are closely linked, and Beijing’s latest fallout can have serious implications for us.

American writer Mark Twain once said, “What you’re having trouble with isn’t what you don’t know. It’s what you know is certainly not.”

As a mega Chinese real estate developer Evergrande continues to implodeThese words have profound implications for Australia, which has bet on farms, mines and vineyards in a strong Chinese economy. For years, China’s economy was expected to continue to beat the world for decades, thereby defeating growth. Support our own economy..

Through international students, exports of resources, and home sales to the Chinese people, Australia has become dependent on the Chinese capital year after year and remains a blessing of Beijing.

But as China’s dropout from the real estate sector becomes more and more apparent, it’s clear that Australians may have to punish the country’s failure to fully diversify its economy. ..

But how did they get here, how Beijing relied on bailouts, and how it moved to the Chinese Communist Party, allowing one of the world’s largest companies to pay attention to defaults.

The world has changed

In the wake of the global financial crisis, the Chinese government has adopted a huge program of construction-led stimuli to support the economy. Although this program was successful for a broader purpose, it has come to be seen by many in the Hall of Fame as overkill.

However, despite these concerns, the construction-led growth model continued and became even more credible. Chinese leaders, such as former President Hu Jintao, have repeatedly reiterated the importance of rebalancing the economy from construction to a more consumer-led model, but it wasn’t.

Beijing’s priorities seem to have changed significantly as the Covid-19 pandemic continues to influence China.

About one in six young people (ages 16-24) in urban areas of China are unemployed, making it difficult for millions of small business owners. Huge amount of money to bail out offshore investors and wealthy domestic bondholders It can fall like a lead balloon.

I’m not saying it’s a form Rescue will not come, it will almost certainly At some point.

Evergrande plans to complete 1.4 million homes for real estate buyers, and more than 3.8 million are employed directly or indirectly by giants, so they will not be allowed to fall into the mountains.

Instead, restructuring is likely to take place to protect real estate buyers, retail investors and suppliers, and President Xi Jinping is giving the Chinese people the opportunity to show that the Chinese Communist Party has their sincere interests. ..

Power of the Chinese Communist Party

As the unequal nature of China’s economic recovery becomes more and more apparent, the central government seems to be looking for ways to prove to the public that they are a top priority.

In the past, a simple share of China’s fast-growing economy ruined was sufficient, but as growth focused on selected industries and regions, it became a much more difficult outlook for Beijing.

Before the pandemic, this was already a brewing issue, as President Xi, alongside Mao, tried to imprint his position on Chinese history books.

In the wake of a pandemic, this is now being done with much more urgency and enthusiasm. From limiting the amount of time young Chinese can spend on TikTok a day to reigning with the power of Chinese tech giants, Beijing claims it is a powerful force for improving Chinese society. I’m trying.

As an individual who was strongly influenced by Mao Zedong’s “Cultural Revolution” in his youth, President Nishi is keenly aware of how important it is to maintain broader social stability.

The market and some wealthy Chinese may want to continue with endless bailouts, but Xi seems to be on a different path. If people are the main focus and the asset owner is burned, it may be even better for his credibility in promoting “common prosperity”.

Potential impact on Australia

China’s GDP is expected to fall 1.4% to 4.1%, according to Goldman Sachs’ analysis of the impact of Evergrande’s predicament on the real estate sector.

Not great news for the Australian economy, where China catches a cold when it sneezes (Covid’s puns aren’t intended). But perhaps more worrisome, the start of new Chinese housing is expected to decline between 15 and 30 percent during 2022.

The harvest of the current project may keep demand for iron ore relatively stable for some time, but the impact on the Australian economy will be more apparent in the long run.

If these scenarios are realized, China’s iron ore consumption could be reduced by 6% to 12% once the harvest of the current project is complete. While these numbers sound relatively harmless on paper, in reality they can significantly reduce the balance between supply and demand.

Iron ore prices peaked at around $ 240 per ton ($ A331) in May, and the decline in steel production in China has already dropped prices by nearly 60% to $ 100 per ton ($ A138). Is slightly below.

The federal budget conservatively estimated the price of iron ore at just $ 55 per ton ($ A76), but did not anticipate any further significant consequences from the blockade or virus regulation.

Before parts of Australia returned to the blockade, it seemed that a huge iron ore price plunge could help the Treasury close some holes in the budget.

However, with more than 11 million Australians blocked and iron ore prices less than half that of June, the Morrison administration or its successors are much more likely to have to make strict budget choices after the election. I am.

For years, Australians have been riding the gravy train of China’s real estate boom, and many believe it will continue for decades to come. But in other words, Mark Twain’s famous quote, we thought we knew it, not something we didn’t know, but it wasn’t.

Tarric Brooker is a freelance journalist and social commentator | @AvidCommentator

at first Australia needs to worry as China’s Evergrande group implodes

How China has affected the future of Evergrande, iron ore and Australia

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