Tim Wallace
THE TELEGRAM, UK
Sun, October 3, 2021
Xi Jinping and China factories
Congratulations if you managed to fill your car with petrol last week. The most urgent part of your personal energy crisis is over.
Unfortunately, Britain is now entering the chronic phase: we are part of a worldwide energy crunch that risks a Christmas lacking festive goods, at least those imported from China.
At home, household energy bills are rising steeply after the price cap was upped by 12pc at the end of last week, as global gas shortages drive market prices to new highs. Economists are predicting an even steeper rise next April.
But our gas and electric issues are a small part of pain being felt globally. Factories across China – the workshop of the world – are the latest victims. The country’s problems are twofold.
One is remarkably similar to the UK’s. British energy providers are in trouble because the prices they charge are capped as the cost of gas they purchase soars, leading to swathes of smaller suppliers closing. Similarly, China’s coal-fired power plants are caught between heavily regulated prices and rocketing coal costs. And just as still weather has deprived Britain of wind power, a drought in China has hit hydroelectric generation.
The second issue is that Beijing sets tough targets on energy intensity – the amount of power used per unit of output – as part of its environmental plans.
Booming demand for goods has sent Chinese factories working overtime, particularly in heavy industry such as aluminium. Power use surged and targets were missed. A mid-year central government examination pressured provinces that have pushed above targets to use less for the rest of the year – power rationing – after grading them by energy usage.
As a result, economists at Goldman Sachs have slashed their economic forecasts for the world’s second largest economy, predicting zero growth for the third quarter and a diminished expansion in the final months of the year.
Metals producers will face a 40pc production cut in “red” provinces, the investment bank estimates, falling to 20pc in “yellow” areas that haven’t missed their targets quite so badly.
The fall for chemicals producers will range from 10pc to 20pc, while others including textiles, paper and plastics makers can anticipate a drop of between 5pc and 10pc.
Impacts are not limited to heavy industry. Even power for electric car charging points and solar panel manufacturers are under threat, says Trina Chen, co-head of Greater China research at Goldman, in moves that are counterproductive when it comes to cleaning up the environment.
Robin Xing, economist at Morgan Stanley, predicts overall steel output will be down 9pc in the fourth quarter compared with the same period in 2020, while aluminium will fall 7pc and cement 29pc.
As the world’s workshop stutters, the rest of us are set to feel the effects – from our wallets to supply shortages.
“Anything that uses metals globally is going to be affected. Even if China doesn’t export to you directly, the price is determined by supply and demand so you cannot escape it,” says Craig Botham, chief China economist at Pantheon Macroeconomics.
China is by far the world’s biggest producer of steel, for instance, churning out almost 1bn tons in 2019, compared to India’s 111m tons in second place.
Ratings agency Standard and Poor’s has already cut its growth forecasts for Asia, citing China’s energy shortages as a key risk to even those diminished expectations. The country is crucial to the Asian manufacturing nexus, already struggling with a swathe of other issues.
Meanwhile, shipping is still reeling from Covid chaos only heightened by the delta wave, which has intermittently closed Chinese ports and trashed production in other manufacturing hubs such as Vietnam.
Shortages are already being felt around the world and are only expected to heighten as the year goes on. More than three-quarters of German manufacturers have reported bottlenecks and problems with core supplies, according to the Ifo Institute.
The institute’s Klaus Wohlrabe warns conditions are getting “tighter and tighter”, leaving companies torn between placing orders now – when it is hard and expensive to get materials – or taking a wait-and-see approach.
It isn’t just steel and copper but materials for plastics, including packaging and toys, are also in particularly short supply.
British businesses and households can expect to feel the impact via consumer goods such as toys and electronics, as well as major purchases that use metals and microchips, including cars and white goods. The construction industry also relies on steel imports.
John Glen, economist at the Chartered Institute of Procurement and Supply, says demand could spike as importers snap up any available steel before shortages take hold – rather like drivers queuing for petrol.
“If you take a dominant player out of the market, it will have a significant impact. Other players will seek to increase capacity, but that is not something that can be done easily or quickly in iron and steel,” he says.
Even if new suppliers can be found in different countries, or if China ramps up production, the shipping industry is snarled up, making it hard to get goods cheaply or promptly.
Materials for buildings have already spiked in price in the UK. Data from the Construction Products Association shows fabricated structural steel is up almost two-thirds in the past year, with steel bars to reinforce concrete close behind.
Noble Francis, the industry group’s economics director, says “the availability of most imports is easing, as is cost inflation”.
But it could be about to strike again, just as soon as China’s stoppages hit supplies arriving in Britain.
“It tends to take around 30 to 40 days on a cargo ship to come over,” he says. “We have not seen the full impact yet but it will be coming through in the next few months, at a time when we have already seen quite rapid price inflation on goods coming from China.”
We can look forward to a wave of new pressures in the run up to Christmas, feeding stagflation fears of rising prices and stagnant GDP.
“China sneezes and global supply chains catch a cold,” says Glen.
“That is what we are in danger of seeing now. The impact has the potential to be quite severe.”
Sun, October 3, 2021
Xi Jinping and China factories
Congratulations if you managed to fill your car with petrol last week. The most urgent part of your personal energy crisis is over.
Unfortunately, Britain is now entering the chronic phase: we are part of a worldwide energy crunch that risks a Christmas lacking festive goods, at least those imported from China.
At home, household energy bills are rising steeply after the price cap was upped by 12pc at the end of last week, as global gas shortages drive market prices to new highs. Economists are predicting an even steeper rise next April.
But our gas and electric issues are a small part of pain being felt globally. Factories across China – the workshop of the world – are the latest victims. The country’s problems are twofold.
One is remarkably similar to the UK’s. British energy providers are in trouble because the prices they charge are capped as the cost of gas they purchase soars, leading to swathes of smaller suppliers closing. Similarly, China’s coal-fired power plants are caught between heavily regulated prices and rocketing coal costs. And just as still weather has deprived Britain of wind power, a drought in China has hit hydroelectric generation.
The second issue is that Beijing sets tough targets on energy intensity – the amount of power used per unit of output – as part of its environmental plans.
Booming demand for goods has sent Chinese factories working overtime, particularly in heavy industry such as aluminium. Power use surged and targets were missed. A mid-year central government examination pressured provinces that have pushed above targets to use less for the rest of the year – power rationing – after grading them by energy usage.
As a result, economists at Goldman Sachs have slashed their economic forecasts for the world’s second largest economy, predicting zero growth for the third quarter and a diminished expansion in the final months of the year.
Metals producers will face a 40pc production cut in “red” provinces, the investment bank estimates, falling to 20pc in “yellow” areas that haven’t missed their targets quite so badly.
The fall for chemicals producers will range from 10pc to 20pc, while others including textiles, paper and plastics makers can anticipate a drop of between 5pc and 10pc.
Impacts are not limited to heavy industry. Even power for electric car charging points and solar panel manufacturers are under threat, says Trina Chen, co-head of Greater China research at Goldman, in moves that are counterproductive when it comes to cleaning up the environment.
Robin Xing, economist at Morgan Stanley, predicts overall steel output will be down 9pc in the fourth quarter compared with the same period in 2020, while aluminium will fall 7pc and cement 29pc.
As the world’s workshop stutters, the rest of us are set to feel the effects – from our wallets to supply shortages.
“Anything that uses metals globally is going to be affected. Even if China doesn’t export to you directly, the price is determined by supply and demand so you cannot escape it,” says Craig Botham, chief China economist at Pantheon Macroeconomics.
China is by far the world’s biggest producer of steel, for instance, churning out almost 1bn tons in 2019, compared to India’s 111m tons in second place.
Ratings agency Standard and Poor’s has already cut its growth forecasts for Asia, citing China’s energy shortages as a key risk to even those diminished expectations. The country is crucial to the Asian manufacturing nexus, already struggling with a swathe of other issues.
Meanwhile, shipping is still reeling from Covid chaos only heightened by the delta wave, which has intermittently closed Chinese ports and trashed production in other manufacturing hubs such as Vietnam.
Shortages are already being felt around the world and are only expected to heighten as the year goes on. More than three-quarters of German manufacturers have reported bottlenecks and problems with core supplies, according to the Ifo Institute.
The institute’s Klaus Wohlrabe warns conditions are getting “tighter and tighter”, leaving companies torn between placing orders now – when it is hard and expensive to get materials – or taking a wait-and-see approach.
It isn’t just steel and copper but materials for plastics, including packaging and toys, are also in particularly short supply.
British businesses and households can expect to feel the impact via consumer goods such as toys and electronics, as well as major purchases that use metals and microchips, including cars and white goods. The construction industry also relies on steel imports.
John Glen, economist at the Chartered Institute of Procurement and Supply, says demand could spike as importers snap up any available steel before shortages take hold – rather like drivers queuing for petrol.
“If you take a dominant player out of the market, it will have a significant impact. Other players will seek to increase capacity, but that is not something that can be done easily or quickly in iron and steel,” he says.
Even if new suppliers can be found in different countries, or if China ramps up production, the shipping industry is snarled up, making it hard to get goods cheaply or promptly.
Materials for buildings have already spiked in price in the UK. Data from the Construction Products Association shows fabricated structural steel is up almost two-thirds in the past year, with steel bars to reinforce concrete close behind.
Noble Francis, the industry group’s economics director, says “the availability of most imports is easing, as is cost inflation”.
But it could be about to strike again, just as soon as China’s stoppages hit supplies arriving in Britain.
“It tends to take around 30 to 40 days on a cargo ship to come over,” he says. “We have not seen the full impact yet but it will be coming through in the next few months, at a time when we have already seen quite rapid price inflation on goods coming from China.”
We can look forward to a wave of new pressures in the run up to Christmas, feeding stagflation fears of rising prices and stagnant GDP.
“China sneezes and global supply chains catch a cold,” says Glen.
“That is what we are in danger of seeing now. The impact has the potential to be quite severe.”
Chinese Property Developer Fantasia Misses Debt Payments
Claire Boston and Alice Huang
Mon, October 4, 2021, 7:01 PM·3 min read
Chinese Property Developer Fantasia Misses Debt Payments
(Bloomberg) -- Another Chinese developer fell into crisis on Monday after failing to repay a maturing bond, adding to the strains of the nation’s heavily leveraged property firms following industry giant China Evergrande Group’s debt woes.
Fantasia Holdings Group Co. didn’t repay a $205.7 million bond that was due Monday, according to a company statement. Separately, property management company Country Garden Services Holdings Co. said that a unit of Fantasia didn’t repay a 700 million yuan ($108 million) loan that also came due on Monday and that a default was probable.
Signs of stress in China’s property sector are spreading, as lower-rated developers face a surge in bond yields to a decade high. Evergrande, the world’s most indebted developer and biggest issuer of junk bonds in Asia, is headed toward what could be one of the nation’s biggest restructurings and fueling concern about wider market contagion. Shares in Evergrande and its property management unit were suspended from trading Monday, pending an announcement on a “major transaction.”
Fantasia itself poses fewer risks to broader markets than Evergrande due to its smaller size. It ranked 60th in a list of contracted sales in the first quarter of this year vs 3rd for Evergrande. Fantasia’s total liabilities were $12.9 billion as of June 30, according to the company’s first-half report, compared with $304.5 billion for Evergrande. It has about $4.7 billion in outstanding offshore and local bonds, vs Evergrande’s $27.6 billion, Bloomberg-compiled data show.
The market had also already been expecting problems. Fantasia was among the worst performers last month in a Bloomberg China high-yield dollar bond index. The private-banking units of Citigroup Inc. and Credit Suisse Group AG had stopped accepting its notes as collateral, Bloomberg reported in September.
Still, Fantasia’s nonpayment spotlights concerns that have become increasingly common throughout China’s real estate industry as investors struggle to quantify often hard-to-see debts. Just last week, the developer refuted a report that money for a privately placed bond hadn’t been transferred. The risks of opaque obligations were also flagged in recent days when people familiar said that a widely unknown dollar note with an official due date of Oct. 3 issued by an entity called Jumbo Fortune Enterprises is guaranteed by Evergrande.
Prices on Fantasia’s bonds tumbled earlier on Monday as speculation mounted that it would struggle to meet its obligations. The company’s 6.95% of dollar-denominated notes due in December plunged nearly 30 cents on the dollar to 38 cents, according to the bond-price reporting system Trace.
Shenzhen-headquartered Fantasia’s management and board “will assess the potential impact on the financial condition and cash position of the Group” stemming from the skipped bond payment, it said.
Country Garden Services announced an agreement last month to acquire the property management business assets from Fantasia’s Colour Life Services Group. Country Garden said Monday that it was enforcing a provision in the deal that would transfer shares of the Fantasia unit to one of Country Garden’s companies.
Chinese authorities have maintained strict rules on leverage, while measures to cool the housing market are damping sales. Recent days have brought more examples of stress at other property firms. Sinic Holdings Group Co. has received a demand to repay some debt after missing two local interest payments.
Fitch Ratings followed its peers on Monday by cutting Fantasia’s credit grade several notches to CCC-, deep into junk territory. S&P Global Ratings lowered its long-term rating on Fantasia on Sept. 29 to CCC from B, citing “elevated risk” that it may not be able to implement a concrete repayment plan over the next several weeks for upcoming maturities. Moody’s Investors Service also cut its rating by one notch to B3.
Fantasia said last week it had wired principal and interest on a $100 million privately placed bond, refuting a report that funds had not been transferred.
Claire Boston and Alice Huang
Mon, October 4, 2021, 7:01 PM·3 min read
Chinese Property Developer Fantasia Misses Debt Payments
(Bloomberg) -- Another Chinese developer fell into crisis on Monday after failing to repay a maturing bond, adding to the strains of the nation’s heavily leveraged property firms following industry giant China Evergrande Group’s debt woes.
Fantasia Holdings Group Co. didn’t repay a $205.7 million bond that was due Monday, according to a company statement. Separately, property management company Country Garden Services Holdings Co. said that a unit of Fantasia didn’t repay a 700 million yuan ($108 million) loan that also came due on Monday and that a default was probable.
Signs of stress in China’s property sector are spreading, as lower-rated developers face a surge in bond yields to a decade high. Evergrande, the world’s most indebted developer and biggest issuer of junk bonds in Asia, is headed toward what could be one of the nation’s biggest restructurings and fueling concern about wider market contagion. Shares in Evergrande and its property management unit were suspended from trading Monday, pending an announcement on a “major transaction.”
Fantasia itself poses fewer risks to broader markets than Evergrande due to its smaller size. It ranked 60th in a list of contracted sales in the first quarter of this year vs 3rd for Evergrande. Fantasia’s total liabilities were $12.9 billion as of June 30, according to the company’s first-half report, compared with $304.5 billion for Evergrande. It has about $4.7 billion in outstanding offshore and local bonds, vs Evergrande’s $27.6 billion, Bloomberg-compiled data show.
The market had also already been expecting problems. Fantasia was among the worst performers last month in a Bloomberg China high-yield dollar bond index. The private-banking units of Citigroup Inc. and Credit Suisse Group AG had stopped accepting its notes as collateral, Bloomberg reported in September.
Still, Fantasia’s nonpayment spotlights concerns that have become increasingly common throughout China’s real estate industry as investors struggle to quantify often hard-to-see debts. Just last week, the developer refuted a report that money for a privately placed bond hadn’t been transferred. The risks of opaque obligations were also flagged in recent days when people familiar said that a widely unknown dollar note with an official due date of Oct. 3 issued by an entity called Jumbo Fortune Enterprises is guaranteed by Evergrande.
Prices on Fantasia’s bonds tumbled earlier on Monday as speculation mounted that it would struggle to meet its obligations. The company’s 6.95% of dollar-denominated notes due in December plunged nearly 30 cents on the dollar to 38 cents, according to the bond-price reporting system Trace.
Shenzhen-headquartered Fantasia’s management and board “will assess the potential impact on the financial condition and cash position of the Group” stemming from the skipped bond payment, it said.
Country Garden Services announced an agreement last month to acquire the property management business assets from Fantasia’s Colour Life Services Group. Country Garden said Monday that it was enforcing a provision in the deal that would transfer shares of the Fantasia unit to one of Country Garden’s companies.
Chinese authorities have maintained strict rules on leverage, while measures to cool the housing market are damping sales. Recent days have brought more examples of stress at other property firms. Sinic Holdings Group Co. has received a demand to repay some debt after missing two local interest payments.
Fitch Ratings followed its peers on Monday by cutting Fantasia’s credit grade several notches to CCC-, deep into junk territory. S&P Global Ratings lowered its long-term rating on Fantasia on Sept. 29 to CCC from B, citing “elevated risk” that it may not be able to implement a concrete repayment plan over the next several weeks for upcoming maturities. Moody’s Investors Service also cut its rating by one notch to B3.
Fantasia said last week it had wired principal and interest on a $100 million privately placed bond, refuting a report that funds had not been transferred.
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