A liquidator has been appointed to take charge of the embattled Chinese developer Evergrande. It's been described as "a slow-moving train wreck" that continues to destabilise China's economy and potentially the rest of the world.
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TVTranscript
00:00 China might seem like a long way away from here in Australia, but it has to be recognised
00:08 that China is Australia's biggest trading partner.
00:12 China buys a lot of Australian iron ore and coal to make steel to feed its construction
00:19 industry.
00:20 And of course Evergrande has been a huge part of that.
00:23 The whole real estate sector in China is massive.
00:27 Now just over the last couple of years the Reserve Bank of Australia has noted significant
00:33 risks stemming from the property sector in China without specifically naming Evergrande.
00:40 We know what company they're referring to.
00:43 And so when you consider Australia's situation, yes we have a budget surplus at the moment.
00:49 A lot of that surplus is responsible, comes from corporate tax receipts that come from
00:55 these commodities exports.
00:58 And any dent in China or if there's contagion to other parts of the Chinese economy, if
01:05 businesses or consumers stop spending, well that could really cause problems here in Australia.
01:12 And that budget surplus might not be repeated.
01:15 So significant issues for Australia but also for the rest of the world.
01:21 How difficult would it be for Evergrande to be broken up?
01:24 And does a decision by a Hong Kong court apply to a company based in mainland China?
01:29 Well this is one of the big questions.
01:31 Whether or not a court in Hong Kong, which is a separate jurisdiction to mainland China,
01:37 whether or not Beijing recognises that.
01:40 Now Beijing has some big questions to be asking whether or not foreign investors or foreign
01:47 creditors might end up having to take a haircut.
01:52 Given that a lot of the problems with Evergrande have been built by property speculation in
01:57 China from big foreign investors, local investors.
02:02 Also local Chinese wanting to use what can be their life savings to invest in off the
02:09 plan and a very unusual situation at the height of the pandemic.
02:13 You might recall seeing vision or pictures of people protesting because their off the
02:19 plan investments weren't going anywhere.
02:22 So it's not just economic, it also has the potential to be a real social problem in China.
02:30 And you see just here in Australia concerns about problems in off the plan investments
02:36 and bad buildings and projects that haven't been completed.
02:40 Imagine that in China.
02:42 So it's all about contagion and whether or not Beijing authorities are able to contain
02:47 that.
02:48 Is Evergrande, the wider Chinese economy, a bit of a worry at the moment, especially
02:52 when you consider the wider geopolitical risks?
02:56 It's now getting close to the front of that pack of geopolitical risks.
03:01 Of course we have Russia's war with Ukraine.
03:05 We have the widening war in the Middle East which is really moving to another level just
03:11 in the last 24 hours.
03:13 That economic instability in China could be a big concern.
03:17 But looking more broadly, the United States, even though there's been speculation the United
03:22 States might fall into recession, it still hasn't happened.
03:26 And this is mainly because many of the economic goalposts have moved during the pandemic when
03:33 so much money was pumped into the global economy.
03:36 But really as that stimulus is withdrawn, we'll be seeing pressures in the United States,
03:41 even though they posted economic growth of 3.3 per cent in the most recent quarter there
03:46 I think.
03:47 But here in Australia, a lot will hang on what happens with the inflation reading tomorrow,
03:52 whether or not we might get another interest rate rise if inflation doesn't start slowing.
03:58 So we can expect to see Australia's economy slowing and perhaps cracks appearing in the
04:03 economy before the end of the year.
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