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Friday, February 21, 2020

China can stabilize its stock markets but not the real economy. - Part 3

The economic fissures are starting to show up in China now.

Peking University's founder group is defaulting on its bonds but the government will save this company because it is a university-linked enterprise.

https://www.reuters.com/article/china-markets-default/update-1-chinas-peking-founder-seeks-bond-repayment-delay-to-feb-2020-sources-idUSL4N28U2DQ

Many Chinese firms cannot pay their employees now because of their shutdowns.  Even if the government helps them with cheap loans, it doesn't solve the fundamental problem (no customer) and their debts will only pile up.

https://www.thejakartapost.com/news/2020/02/19/chinese-companies-say-they-cant-afford-to-pay-workers-now.html

No monetary policy can help in this situation unless the virus outbreak is contained.  Monetary policies cannot override job insecurities.  When people are suffering from pay cuts and job losses, they will cut back on their spendings.  Nobody will buy a car when he doesn't have job security.  This is a fact of life.

https://sg.news.yahoo.com/chinas-passenger-car-sales-tumble-041809740.html

We had stated in our previous post that China's consumption would fall into the abyss and monetary policies would not resolve this.

http://sg-stock.blogspot.com/2020/02/china-can-stabilize-its-stock-markets.html

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