USA Screwed the Pooch Re:Latin America

Investment Analysis Clubs Macro Economic Trends and Risks
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Unlike the US, China generally does not try to dictate how its trading partners should behave and what sorts of rules, norms, principles and ideology they should adhere to. What China does — or at least has by and large done over the past few decades until now — is to trade with and invest in countries that have goods — particularly commodities — it covets…

China’s rise in the region coincided almost perfectly with the Global War on Terror. As Washington shifted its attention and resources away from its immediate neighbourhood to the Middle East, where it frittered away trillions of dollars spreading mayhem and death and breeding new terrorists, China began snapping up Latin American resources. Governments across the region, from Brazil to Venezuela, to Ecuador and Argentina, took a leftward turn and began working together across various fora. The commodity supercycle was born.

China’s trade with the region grew 26-fold between 2000 and 2020, from $12 billion to $315 billion, and is expected to more than double by 2035, to more than $700 billion.

In the last 20 years China has moved from an almost negligible position as a source of imports and destination of exports within the region to become its second trade partner, at the expense not just of the US but also Europe

Monroe doctrine! Monroe Doctrine!
We took Latin America for granted and hosed ourselves.

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The newly opened container port will shave 10 to 12 days off shipment times between Shanghai and Peru, reducing transit times to around 23 days. It will also cut logistics costs for shipments between China and Peru by at least 20 per cent, the state-run China Global Television Network (CGTN) reported.

This should help all of Latin America as goods can be shipping from Lima to other cities.

China has worked with 22 Latin American countries on belt and road infrastructure projects, with shipments to and from Chile, Colombia and Ecuador also likely to pass through Chancay.

Chinese exporters refocused on non-US markets to avoid the tariffs, and more of the same can be expected as Trump has vowed to place tariffs of 60 per cent on US imports from China in his second four-year term, which will begin in January.

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I saw comments on TV. The US is seen in South America as being mostly concerned about drugs and immigration.

Meanwhile China makes major investments in raw materials like lithium and iron ore. And infrastructure like seaports et al.

Our foreign policy efforts could be improved.

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Used to be the US would embrace any jumped up piece of poo, if they were willing to pay lip-service to being a “good anti-communist”. Maybe the US’ extremely narrow viewpoint, over the years, left the door open for others not quite as intrusive?

Steve

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More likely differently intrusive.

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Like a loan shark or dope dealer?

“We paid for this really nice port for you guys. Be a shame if something happened to it.”

Steve

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Maybe something more like

“We paid for this really nice port for you guys, but you have not done anything like keeping your repayment agreement, and so we are taking possession of it and, by the way, we will be using it for your benefit by combatting the blatant imperialism of your ‘northern neighbor’….”

d fb

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To be fair, China is not facing much immigration from South America (especially illegal).
Nor is there a lot of South American drug movement into China.

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Once a facility like that is built, the host city/country quickly becomes dependent on it. Just seize the port, for non-payment of debt, and stop traffic.

Due to pressure from the north, Mexico is trying to wean itself off of Chinese imports. They are finding the process difficult, and long.

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But of course, China is a major source of chemicals used to make fentanyl in Mexico.

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More likely you seize the port and raise fees covering your debt payments and disrupting the local economy.

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You do wonder if cocaine makes it to China from South America. I would not be surprised.

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Yankee go home, leave us a loan.

The Captain

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1 china can not afford the resources and can’t use them to the same degree now

2 the projects are not paid for because the economics make little sense. Then Chinese banks are on the doorstep for the Chinese government demanding assets in exchange for defaulting on the prior investments. The deals are unfair in the first place.

3 American newspapers are for American consumption to other public opinions.

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China has a huge balance if trade surplus. They take in much more cash than they spend. What happens to that cash?

Easy to invest it in resources likely to be needed in the future like iron ore or lithium.

Easy to invest it in future growth industries like solar panels or batteries for electric vehicle.

Easy to invest in military equipment.

Easy to use it to build international respect and influence.

A typical manager in the US would do all of these. The decision part is how to allocate resources to each. And that depends ob priorities.

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Money talks everything else is disposable garbage.

The trade balance is a part of the balance of payments, which is a record of all a country’s international economic transactions. The balance of payments includes the trade balance, as well as financial capital and financial transfers****

My comment when people speak the trade balance they do not include the financial capital and transfers.

Second AI Google result

Yes, China’s international debt is increasing, with reports showing a significant rise in its total outstanding debt over the past decade, primarily driven by credit extended to state-owned enterprises; while the debt is considered manageable by some due to its largely state-owned nature, the rate at which Chinese companies are borrowing remains a concern for potential economic instability.

Key points about China’s increasing debt:

  • Significant growth:

China’s debt has increased considerably in recent years, with most of it held by state-owned enterprises.

  • Impact on developing countries:

China’s overseas lending has led to substantial debt burdens in several developing nations.

  • Potential concerns:

While considered manageable by some, the rapid increase in debt could pose risks to China’s economic stability.

  • Recent trends:

Reports indicate that China is considering raising further debt to stimulate economic growth, particularly to address local government debt issues.

My comment this borrowing makes the trade surplus false wishes in financial terms.

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I think we all know of the vacant uncompleted apartment buildings. Letting those firms go bankrupt is probably not a big deal. They lose their equity and the buyers take them over at attractive prices.

The painful part is all the people who made downpayments on the apartments that were never completed. If they lose their equity, that could be a big factor in slowing their economy. So probably looking for ways to keep that from happening. Govt uses loan money to buy their equity at par?

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According to available information, the major Chinese state-owned companies that frequently borrow from overseas are primarily large commercial banks like the Industrial and Commercial Bank of China (ICBC), Bank of China (BOC), China Construction Bank (CCB), and Agricultural Bank of China (ABC), which are often referred to as the “big four” and are significant players in financing projects under the Belt and Road Initiative (BRI).

Key points about these companies:

  • Major lenders:

These banks are major providers of overseas loans, particularly to developing countries, often funding large infrastructure projects.

  • Government influence:

As state-owned enterprises, their lending decisions can be influenced by government policy and priorities.

  • Other important entities:

Alongside these commercial banks, the China Development Bank (CDB) and the Export-Import Bank of China (EXIM Bank) are also crucial players in China’s overseas lending, often focusing on government-backed projects

2nd Google result

There isn’t much information about how much money Western banks have lent to Chinese banks, but here’s some information about Chinese overseas lending and its relationship with Western banks:

  • Chinese overseas lending

In 2021, 80% of China’s non-emergency syndicated loans were made alongside Western banks and international financial institutions.

  • Chinese overseas lending growth

From 2008 to 2021, China’s overseas lending increased more than 10 times. However, since late 2021, total overseas lending has decreased by 20%.

  • Chinese overseas lending destinations

In 2021, China’s lending to European countries increased almost fourfold, while lending to African countries decreased from 31% of the total in 2018 to 12%.

  • Chinese overseas lending and international creditors

As of June 2022, Chinese banks were the sixth largest international creditors. However, Chinese overseas bank lending only accounts for about 5% of its total banking assets.

  • Chinese loans and underreporting

There is a systematic underreporting of Chinese loans, which has created a “hidden debt” problem.

Yes, China’s four largest banks are facing challenges, including:

  • Loss-absorbing capital

The four banks, which are the Agricultural Bank of China, China Construction Bank, Bank of China, and Industrial and Commercial Bank of China, are short of their total loss-absorbing capacity (TLAC) targets. The banks need to accumulate capital equal to 20% of their risk weighted assets by January 1, 2025.

  • Profitability

The average net interest margins for the four banks are expected to fall to 1.4% in 2024, down from over 2% in 2019.

  • Property-related loans

The NPL ratio for property development loans in China is expected to peak at 6.4% by 2025. The average property-related bad loan ratio for the four banks was 5.2% in mid-2023.

  • Bad construction loans

In 2023, bad construction loans increased across the four banks by 38.38%.

  • Russia-related business

Some of the biggest state-owned lenders have reported drops in Russia-related business.

Other challenges include:

  • A slowing economy that threatens job security
  • A drop in asset prices that impacts buildings used as collateral for bank loans
  • Local governments struggling to repay debts
  • Stricter asset classification rules that banks must comply with by the end of 2025
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My comment, China’s central bank has modernized its financial system. If tariffs cost Chinese manufacturers a lot or enough this is a house of cards in the swaps market.

Yes, China is actively involved in the global swaps market, particularly through its central bank’s network of bilateral currency swap agreements with other countries, which allows them to exchange currencies to support trade and investment, and provide liquidity during financial crises; essentially making them a part of the global swaps market.

Key points about China’s involvement in the swaps market:

  • Bilateral swap agreements:

China’s central bank has signed numerous bilateral currency swap agreements with other central banks, facilitating cross-border transactions and promoting the use of the Renminbi (RMB).

  • Swap Connect program:

This initiative allows international investors to access China’s onshore RMB interest rate swap market, further integrating China into the global swaps landscape.

  • Role in crisis situations:

China’s swap lines can act as a source of emergency liquidity for countries facing financial difficulties

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Nope. It is a huge deal to the buyers/investors. The semi-completed buildings–and likely the associated unfinished cities–will need to be torn down. They can not be salvaged. People paid cash for the units in each building but the buildings were never completed. After years of neglect, nothing can be saved/salvaged. Massive loss of capital over a large investment group.

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