Dismantling a China giant

Kia ora,Welcome to Tuesday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.I'm David Chaston and this is the international edition from Interest.co.nz.And today we lead with news the world's largest property developer is to be dismembered and liquidated.First up today, while you may already know the headline, we must note that Evergrande has been forced into liquidation by a Hong Kong court. While this may not strictly qualify as a 'surprise' it is still a very big deal, for a number of reasons. First it is a spectacular crash-to-earth by a very well connected company - one that rapidly lost favour. Second, it heightens the risk of all other Chinese large property developers, some of whom (like Country Garden) may have assumed there would be bailouts underpinning their industry. And third, it shows Hong Kong courts are now under the direct control of Beijing, handing down verdicts in big sensitive cases in the way Beijing wishes to signal. President Xi is not happy with his billionaire 'friends'. One reason he will be livid is that Evergrande has liabilities to others of over US$300 bln. Unless there is some sort of rescue package, it is hard to see how there won't be a cascading impact. After all, US$300 bln is 1.7% of China's 2023 GDP.Sadly for China, this won't be a quick crash from which everyone can pick themselves up and carry on. It will be a slow lingering process from here. Evergrande claims assets of US$240 bln, but that valuation must be very suspect. If China dumps on international creditors in this case, it will accentuate the de-risking pullback underway.And we should also perhaps note that the share price of EV maker BYD took a tumble yesterday (-4%) missing profit forecasts despite massive sales gains, and a big jump in profit from a year ago. Shareholders have been highly sceptical about the investment prospects of the company recently, making down its share price by -36% over the past year. Also weaker than expected were international sales of its vehicles; it has strength in the Chinese domestic markets however.Meanwhile in the US, the Dallas Fed factory survey contracted rather sharply in January, falling to its lowest level in eight months, basically on weak order levels. This is a sentiment isurvey in the heart of America's oil patch.Across the Pacific, Taiwan's consumer sentiment rose and has now reached its highest level since March 2022. For them the pleasing thing about this survey was that improvement came across the board. The resolution of their Presidential election clearly helped.Singapore's producer prices ended up -1.1% lower in December than in the same month a year earlier capping a full 12 months of declines. Singapore does go through these producer deflation periods on a regular basis, but the last one (apart from the pandemic) was back in 2015-2016. The current one might only have lasted half that time however.In contrast to China, India claimed that it will grow at a 7%+ rate for the next few years. It says "the strength of the financial sector and other recent and future structural reforms" ensure growth at a fast clip. But independent observers are more sceptical that the official confidence.In Finland, they have just had a presidential election, a serious and civilised affair. A 'conservative' (for Finland) ex-prime minister won of the first round, beating out an independent Green candidate. The key issues weren't economic however, rather focused on its new role as a NATO front-line border state, spooked by the Ukraine invasion. But neither candidate won outright so there will be a runoff election in two weeks.The UST 10yr yield starts today at 4.10% and down -4 bps from this time yesterday. The price of gold will start today up another +US$8/oz from yesterday at just on US$2027/oz.Oil prices are down -US$1 at just over US$77/bbl in the US while the international Brent price is now just over US$82/bbl.The Kiwi dollar starts today at just on 61.1 USc and up +20 bps from yesterday. Against the Aussie we are unchanged at 92.7 AUc. Against the euro we are up nearly +½c at 56.5 euro cents. That all means our TWI-5 starts today at 70.1 and up +20 bps from yesterday.The bitcoin price starts today firmer yet again. It is now at US$43,177 which is up +2.1% from this time yesterday. Volatility over the past 24 hours has been moderate at just on +/- 2.0%.You can find links to the articles mentioned today in our show notes.You can get more news affecting the economy in New Zealand from interest.co.nz.Kia ora. I'm David Chaston. And we will do this again tomorrow.