Reading/content links include a look at the race to increase uranium enrichment capacity in Western nations, Bloomberg’s interview with Andy Xie on the Chinese property sector, Rodney Jones on why New Zealand is so vulnerable to China’s economic slowdown, the All Else Equal podcast discuss how to make a retirement plan that will work for you and Al Jazeera on ISRO’s next mission after its historic moon landing. 

• Mining.com: The race to ditch Russian uranium starts in New Mexico’s desert.
• Bloomberg: China’s property sector needs to shrink, economist Andy Xie Says.
• TVNZ: Rodney Jones on why NZ is so vulnerable to China’s economic slowdown (some of my notes are below).
• All Else Equal podcast: How much should you save?
• Al Jazeera: India launches rocket to observe sun days after historic moon landing.

Below are my paraphrased notes from the short interview with Rodney Jones (please note these are for personal reference only and any mistakes in transcription are my own):

On China’s property crisis: it has been building up over a long period of time but the big issue is that the developers are in a process of collapse, fraud has been endemic and they have a lack of cash. He estimates there are something like ~70m unfinished apartments, with a total value of ~US$10tn of work in progress. They finish about 7m apartments a year, so it would take 10 years to complete all the projects in the pipeline. You have also had a shock to the household sector. People are saying what’s the point in putting down a deposit and then paying a mortgage for a property you will never get. So you have seen a slump in housing transactions. Evergrande had to write off ~RMB 1tn in property sales they had booked as revenue that were in effect fake.

On the risk of an economic collapse: this is a cumulative process and, once it gets going, it takes a lot of effort to stop it. The risks are now really accumulating. One of the issues is the lack of economic leadership from the new team and the level of uncertainty observed on a day to day basis. Thinks the economy is contracting this quarter. We had a bounce from Covid-19, but less than people thought. And since April/May, it has fallen away very fast. If you look at the Chinese economy over the last few years, the zero-Covid policy worked for China, they grew strongly in 2021, and ~3% in 2022. In Jan/Feb of this year, people were out travelling and spending, but since then it has stopped. China’s growth since it joined the WTO in Dec 2021 changed the world. For ~20 years, the economy went from ~US$1tn to ~US$18tn. A China that is not growing completely changes the world.

On the implications for New Zealand: The country has remained a bulk commodity exporter. They have done well with exporting over the last few years but that is starting to change. Chinese demand is very important and they are not turning up. As deflation takes hold in China, they are bulk buying some commodities but those they can store. So NZ is going to be on the front line of this shock. China is trying to produce their own dairy and NZ enabled them to do that – gave away their cows at a very low price, farming systems etc. This will be a terms of trade shock the country doesn’t need at this time, when it is already grappling with a higher cost of living, higher rates. And this will impact the rural communities. Certain other sectors are also at risk, long haul tourism for example. Generally observe that when youth unemployment goes up, people tend to stop travelling.

On the risks with the Chinese financial system: China is a socialist market economy, but President Xi is making it more socialist, less market. When it comes to a financial crisis, it won’t play out the way it does in a market economy. They will manage it, but it will mean people’s savings and deposits will be locked up. They won’t be able to spend or get their money back. The Chinese banks have also been retrenching and shrinking their offshore balance sheets. So it won’t be a Western-style financial crisis (there won’t be a Lehman moment), but he thinks we will see it drag on for a long time, there will be deflation, reduced spending etc. For NZ, this is a shock to the agricultural sector and hence the economic model they have built over the last 20 years where China has been at the center of that. The country will have to reimagine how their economy works, what sectors, policies are needed etc.

On engaging with China: The Chinese government is not what it was. China is a system where you have the party and the government coexisting but Xi has diminished the role of the government and elevated the role of the party. The party is behaving in a more dictatorial way that it didn’t in the past. Perceptions haven’t caught up, however, even though the changes have been unfolding over the last decade. The anxiety in recent months is why is China buying so much oil, importing so much refined product. Is a blockade a possible response if the Taiwan election goes poorly? Impossible to assess the probability of that, but can say that it is non-zero. Governments are perhaps starting to grapple with what a worst case scenario look like. For NZ, the country needs to engage in some deep thinking and prepare for more regular shocks. We are living through shocks already, but haven’t adjusted to what a world with regular shocks look like.