China/Asia Economic Implosion On The Horizon? - Part III

Thank you for following our multi-part research (Part I, Part II) into the possibility of a China/Asia market collapse and our hypothetical analysis of what that event might consist of and how it may play out. So far, we have discussed the Chinese housing market rotation as well as the recent trends within the past 7+ years, expansion and foreign investments made by many Chinese and successful Asian investors. All of this research raises some interesting questions for us to consider.

Just how much risk exposure have these Asian/Chinese investors set themselves up with?

How deep of a property price or equity price decline would be enough to set off a panic mode?

How tightly are the assets in China/Asia associated with equity/debt that was used to explore foreign investments and additional debt?

How varied and deep do these “debt rabbit holes” go in terms of derivative assets, layered debt and more?

How has the expansion of credit/debt in China expanded out into other foreign markets?

How has the US and other central bank easing policies fostered a risk-taking role in Asia over the past 7+ years?

And finally, the BIG question:

What would it take for China/Asia to move from an investments/risk-taker mode to a protectionist/crisis mode?

One of the first things we need to consider is the expansion of credit that originated after the global market credit crisis (2008 to 2010) was still evident in China and Asia – although not quite as deep in form and structure as it was in the US, Canada, Europe and others. Our previous research reports show that China’s property market and equities markets were not subject to the types of deep declines the US and other established economies experienced. This was likely because China, at the time, was still experiencing a middle stage economic expansion period where China could continue to fund and export enough raw and finished materials to keep their economy running at 6%+ without much issue. Of course, after 2015~2016, China was able to accomplish this by devaluing their currency, expending billions in reserves to build and product excess cities and finished material as well as foster and finance hundreds of large-scale projects throughout the globe (Africa, Europe, Asia, Mexico and South America).