Won’t this cause inflation for the Chinese or are their markets that controlled?
There’s no such thing as a market so controlled that it’s immune to inflation. The Russian Ruble is as controlled as a currency can be and Russia is teetering on the edge of hyper-inflation. It’s core inflation rate is over 9% and their version of the “Prime Rate” for lending has now jumped from 19% to a historic 21%.
China has more breathing room than Russia but it’s still not going to be pretty, especially if this “bailout” fails.
Somehow, I really don’t think this will be the time China will bankrupt.
Don’t they have many trillions in reserves? Of course they won’t be bankrupt
Don’t they have many trillions in reserves?
Right now China has about 3.2 trillion in ForEx of all kinds and currencies which means that this bailout represents nearly half of the total.
ForEx is an extremely complicated subject, way too much for a single post, but it is essentially the lubricant for trade. If you don’t have enough of it in the right currency on an hourly (or less) basis to support your imports and exports then the machine will seize up.
So what China is doing here is risky as hell and if it doesn’t work they will soon have the same kind of financial problems that Iran does and that is stupendously bad for an export based economy.
The way I (state certified smoothbrain) think of it is this: Cash reserves serve as short time collateral when a state is shopping on credit (which states usually do). So your transactions need to be backed by a currency your trading partner is willing to accept.
Other reserves are exist, but these usually need to be converted first, which adds a layer of delay and transaction that makes it a more long term thing.
Not sure how correct it is, but I find that this oversimplification works and is correct most of the time.
They’re not going to do this with cash. They’ll print up some paper money (eg. bonds) like everybody else and make the poor subsidize the rich via inflation.
https://www.ft.com/content/b2feba22-5064-4eb1-84b1-3003cac36def
Kinda weird that they’re calling the “collapsing real-estate sector” an economic challenge when that’s completely on purpose
I’m guessing they believe that the real estate collapse is a 4d chess move to entrap private equity. I’m also guessing they don’t realize the largest real estate developers in China are already state owned entities…
SOE are owned by the state, but they are operated just like any other profit seeking organizations, and thus are not immune to the same problems with private equity we have in the west.
I’m guessing the state is just another fundamentally corrupt government that will print endless money to prop up the rich (including the state itself) at the cost of extreme inflation for the poor…
I mean this same thing happens in USA regularly and it’s never a “trap” by the state for the rich people who run the state.
