Americans, in general, and some US politicians, in particular, are the most ignorant people on planet Earth when it comes to being aware let alone understanding what is going on outside of their own country. I am probably being too harsh, but so much of what they know is from reading local newspapers that are not the pinnacle of accurate information.
China and Philippine government-to-government relations are a “critical” election issue, according to at least one presidential candidate. Certainly, foreign relations should be a part of the discussion. However, if this discussion is going to be more than a meaningless and emotional campaign issue rather than substantive, it might be well for candidates to know current events vis-a-vis China.
My China questions: “Sir [or Madame as the case may be], how do you think that the new AUKUS pact is going to affect Southeast Asian relations with China and particularly as regards the Philippines?” “With Evergrande share price down 90 percent and its bonds nearly worthless, what is the Philippines exposure to this problem?”
The Pharmally Pharmaceutical issue is a domestic matter, unless you might include its connections to Taiwan and not Big China. However, AUKUS (best pronounced ‘Orcs’?) is both a huge regional and international concern.
Orcs is the recently announced trilateral security pact between Australia, the United Kingdom, and the United States. Under the pact, the US and UK agree to help Australia to develop and deploy nuclear-powered submarines, adding to the Western military presence in the Pacific region.
France had a firm deal—at least they thought—to sell some $40 billion of conventional submarines to Australia. While both the US and Australia say that the French knew the deal was in jeopardy for some time, France is so angry from betrayal that it withdrew its ambassadors from both the US and Australia. This is unprecedented, particularly as concerns the US. France was the first ally of the new United States in 1778 and that treaty and military support proved decisive in the victory over Britain in the American Revolutionary War.
Further, Orcs is a direct challenge to China and its power in the Western Pacific. New Aussie Nuke subs are not going to just be sailing the Antarctic Ocean.
The mainstream press said that the Chinese government response to Orcs was “predictable.” Nothing to see here or worry about. In truth, the Chinese are Wuhan Bat Soup crazy about Orcs. Not so long ago, Australia abandoned plans for a free trade agreement with Taiwan at Beijing’s insistence. The Great Game in Southeast Asia just changed substantially, and the Philippines is definitely a player in that game.
Evergrande Group is China’s second-largest property developer by sales and in 2018 became the world’s most valuable real estate company. That was then. Now it is ready to go out of business, unless the Chinese government bails it out. It is estimated that around 1,500,000 customers could lose deposits on Evergrande homes that have yet to be built.
In 2020, its revenue was $79 billion. The firm says it has 200,000 employees, but indirectly creates more than 3.8 million jobs every year. But it also cannot pay its bond debt of over $300 billion, and additionally has $38 billion owed to suppliers and contractors.
Fitch Ratings—the experts on the Philippine economy—ranked Evergrande below investment-grade and “affirmed” the company’s “Highly Speculative B+ rating credit with a limited margin of safety” in September 2020. Now it’s “CC; Very high levels of credit risk, Default of some kind appears probable.”
When Evergrande goes belly up and depending on the Chinese government response, the regional fallout will be felt. And when the Chinese government is facing a domestic problem, it is guaranteed that it turns to making loud noises internationally.
E-mail me at [email protected] Follow me on Twitter @mangunonmarkets. PSE stock-market information and technical analysis provided by AAA Southeast Equities Inc.
