Adam Tooze: belief

Transcript context

…If there were a Chinese financial crisis coming out of coronavirus, what would that look like? What’s the weakest stress point? The real estate sector is one obvious one, and some of the highly leveraged Chinese development companies. Evergrande is, I think, most people’s favorite as the weakest link in the Chinese real estate development sector. Our ballpark — a hundred billion dollars in foreign exchange borrowing on its balance sheet. So, an extremely fragile actor. Whether it’s systemic in the Chinese context is a different question. Whether the collapse in that firm by itself would have a large enough ripple effect is an open question. The shadow banking system, in general, in China is a huge worry. These are the banks which operate outside the mortgage lenders of various types, but also various types of lenders that support local governments. Then there is the rather horrifying experience of 2015–2016, which is easily underestimated in the West. We were distracted by a variety of other issues at that point. But China went through a really dangerous-looking foreign exchange run in ’15–’16, lost about a trillion dollars’ worth of reserves, which is large even for the Chinese to absorb. And that’s another model of what a shock might look like, a financial shock. Mercifully being spared that so far this time around, it would be very bad news for the emerging market economies which are closely coupled to China. For dealing with the current financial crisis, what is the statistic you wish we had that we do not?…

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