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Since China embarked on major economic reforms in 1978, its GDP growth has averaged a stunning 9.14% per annum.
But not all's well these days. After decades of unprecedented debt leveraging, and as the global economy slows, China sees its economy following suit and possibly crashing.
That has implications not just for China, but for markets across the world. Last year, China's economy accounted for 18.56% of world GDP, according to the International Monetary Fund (IMF). And even with the economic slowdowns it's experiencing, IMF's estimates claim that China will account for 30% of aggregate global growth in 2023.
The Chinese Communist Party (CCP) is finally taking some steps to address two major issues that have stymied China's economic growth - the fallout from their "zero Covid" lockdown policies and an overleveraged property market on the brink of collapse.
It could be too little, too late. But in the meantime, there's money to be made betting on the Chinese economic machine to miraculously keep on trucking.
Let me tell you what you need to know, and then I'll show you how to do it.
Why China's Real Estate Woes Could Have Global Impact
China's explosive economic expansion can mostly be attributed to the country's cheap labor pool and state-owned, state-financed, and internationally financed mining and manufacturing industries. Since 1978, China has increasingly become the "world's factory," producing all manner of components and finished goods for global export.
In fact, cheap Chinese imports kept inflation at bay around the world for more than four decades.
Internal growth lifted standards of living and drove hundreds of millions of Chinese from rural farms into manufacturing cities around the country, where they needed homes and apartments.
To meet that demand, property developers bought land from local governments, built like mad, kept on borrowing, and kept on building. They leveraged themselves to unheard of levels and built ghost cities on bank loans, bonds, and more frighteningly through local government financing vehicles (LGFVS), essentially off-balance sheet loans made to local governments from state-owned national and regional banks.
The property sector now accounts for as much at 30% of China's GDP of $17.73 trillion at the end of 2021, according to the World Bank.
Well, right before Covid unleashed its terror on the world, Chinese authorities tried to rein in excessive speculation and leverage in the property sector by instituting three "red lines."
For property developers that meant: 1. liabilities could not exceed 70% of assets; 2. net debt should not be greater than 100 percent of equity; and 3. cash reserves had to be more than 100 percent of short- term debt.
None of the country's biggest developers could meet the three red lines or even one of them. They were, and still are, all facing a liquidity crisis and technically insolvent.
If the CCP doesn't succeed at avoiding what some analysts suspect could be China's "Lehman moment," not only will the Chinese property sector come crashing down, but the co…
About the Author
Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.
Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.
Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.