An Investor Who Sees The Future

A bank in Inner Mongolia, China, has gone bankrupt.

According to the Deposit Insurance Regulation, the principal and interest up to 500,000 yuan per person are protected, but those who deposited more and the creditors lost their money entirely.

Although the amount of damage was not that large as it was a small local bank that went bankrupt, this brought about a huge aftermath.

Bank failures are an unusual occurrence in China.

This is because whenever a crisis occurred at an individual bank, the central bank, the People's Bank of China, had stepped in to prevent depositor losses through forced mergers and acquisitions. But this time, they took no action and let it go bankrupt.

This meant that the government would no longer step in to rescue insolvent banks. Anxiety spread, and surprised depositors rushed to the banks to withdraw their deposits, and the banks were engulfed in the fear of a bank run.

The Financial Times reported that five more local banks in provinces such as Liaoning and Shandong had gone bankrupt, and that about 20 more were in danger.

As the theory of a Chinese economic crisis grew, the Shanghai Composite Index, which had been rising moderately, began to plummet ahead of the year-end.

It fell 6.5 percent in one day, and then fell an additional 4.63 percent the next day.

It also introduced various stock market stimulus measures, such as banning the sale of major shareholders' shares and encouraging companies to buy back their own shares.

A spokesperson for the Ministry of Commerce said in a strong tone.

"There is no problem with the Chinese economy. Our foreign exchange reserves are sufficient, and the government is ready to take additional measures for financial stability at any time. We will severely punish those who spread rumors."

300 journalists who wrote articles pointing out the risks of the Chinese economy were investigated by the authorities.

Even without official instructions, portal and social media companies deleted or blinded posts on their own.

Unprecedentedly strong media and public opinion control was implemented, and the People's Daily and CCTV broadcast articles defending the government's position.

But despite these strong measures, the stock market's decline showed no signs of stopping, and people losing their fortunes continued to emerge.

Instead of raising the benchmark interest rate, the People's Bank of China lowered the yuan's reference rate by 6.3 percent.

China has a peculiar managed floating exchange rate system. Therefore, transactions must be made within 2 percent above or below the exchange rate announced by the People's Bank of China.

As the currencies of Asian countries effectively move like a peg system, when China devalued the yuan, the Thai baht, Philippine peso, Vietnamese dong, and Indonesian rupiah all fell in succession.

Bank runs and a stock market collapse were problems, but the most serious problem was real estate.

Until now, Chinese real estate prices had skyrocketed to the point where it was said that you could make money just by buying it. Concerns were raised that if the financial instability spread to the real economy, real estate prices could plummet.

The PIR (price-to-income ratio) index of first-tier cities such as Beijing and Shanghai was the highest in the world, and local governments, one and all, embarked on new city development.

If you build a city on wasteland and sell apartments, the construction industry is stimulated, employment increases, and tax revenues increase.

Therefore, new city development was like a goose that laid golden eggs for local governments. However, the class that could purchase real estate was limited, and as sales poured out, vacant houses gradually increased, and corporate and household debt also increased significantly.

In any case, there is no problem when real estate prices are rising. But the moment they fall, all the problems arise.

When prices fall, the number of people who want to buy houses decreases, and when demand decreases, prices fall further. If a situation arises where people cannot repay their loans even if they sell their houses due to a drop in house prices, banks could go bankrupt in succession.

The anxiety that began with the bankruptcy of a local bank spread from the stock market and real estate to the real economy.

Professor Nouriel Roubini published an editorial in the New York Times titled 'A Gray Rhino Is Charging Straight at China.'

As several pieces of bad news broke out simultaneously, the internet was flooded with concerns that China would collapse soon.

- The situation in China is serious right now.

- What's wrong with the Shanghai Composite Index?

- F*** my China fund ㅜㅜ

- Real estate is also plummeting. After all the houses they've been building.

- Inland cities are overflowing with empty houses right now. There are even ghost towns where no one lives in the entire city.

- Is a real financial crisis going to break out at this rate?

- When will this damn stock market stop falling ㅜㅜ

- The bankruptcy of China has begun! Get out quickly!

- Isn't South Korea in danger too? The stock market is falling like crazy, and the exchange rate is fluctuating~

- Still, isn't it a relief that South Korea has Kang Jin-hoo?

- What are you talking about? If the Korean economy has a problem, Kang Jin-hoo will be the first to leave. The speculator class isn't going anywhere, is it?

- I heard OTK Company is also increasing its dollar holdings.

- What's going to happen to Saemangeum? Will the construction be able to proceed as planned?

- I hear the situation in Russia is also serious, isn't the inter-Korean economic cooperation going to fall through?

- I'm so damn curious about what Kang Jin-hoo is thinking.

***

While the Chinese economy was faltering, the crisis in Europe was also getting more and more serious.

As a hard Brexit became a reality, tensions rose at the border between Ireland and Northern Ireland. The UK hinted that it could control the border, and the IRA (Irish Republican Army) warned of terrorism, saying 'we will not avoid an armed struggle for the unification of Ireland.'

Germany and France refused to provide financial support to Southern Europe. Greece refused to implement an additional austerity plan, and voices for withdrawal from the EU also emerged from Italy, Portugal, and Spain.

Another time bomb was Turkey.

As capital flowed out, Turkey, which was already suffering from a trade deficit, experienced a foreign exchange crisis. As the government gave up on defending the exchange rate, the lira plummeted by a whopping 25 percent in one day, hitting a new low.

Inflation was also serious, and there was even talk of having to implement redenomination again.

President Hakan Erener demanded additional aid from the EU, claiming that the Turkish economy was suffering because of the refugees.

Until now, Turkey has been receiving aid from the EU to accommodate the refugees flooding into Europe. They were already in a tug-of-war over the amount of aid, and Turkey had unilaterally presented a huge bill.

The EU refused this and countered by demanding that Turkey disclose the details of the aid it had provided so far, and President Erener threatened to send the refugees to Europe.

In fact, citing that the refugee camps were at full capacity, they opened a passage for some refugees to cross into the EU.

As refugees poured across the Turkish border, the Balkan Peninsula, which was already in crisis, was turned upside down. Greece, Bulgaria, and Romania, while criticizing Turkey, also announced that they would allow the refugees to pass through.

From the refugees' perspective, they would rather settle in Western European countries with better economic conditions than in Eastern or Southern European countries with difficult circumstances.

This, in turn, caused an uproar in Germany and France.

Although they belonged to the same community, the fact that their circumstances and thoughts were different was a fundamental problem for the EU.

The interests of each country were in sharp conflict over issues such as Brexit, the Southern European financial crisis, and refugees, but no clear solution was in sight.

***

[EU and China Groan Under Various Crises]

[Global Economy Threatened by Perfect Storm]

[Is the Financial Crisis Beginning?]

[South Korea Also Can't Rest Easy]

[The US Must Stop Raising Benchmark Interest Rates...]

[If Isolationism Deepens, a Big Shock to the Korean Economy]

Even though it was a new year, gloomy articles continued to pour out from the beginning of the year.

Whenever bad news broke out, there were many concerns that it would spread to a financial crisis. This time, the positive view that it would pass well and the negative view that it was really dangerous were in conflict.

Time will tell which side is right.

***

We decided to gather at Hyun-joo noona's house for dinner to celebrate the new year.

Unlike at work, noona greeted us in casual clothes. Henry had gone to the China branch to find out the exact situation, so it was just noona and Gun at home.

We sat around the dining table, ate, and drank wine and other beverages.

Hyun-joo noona said with a very tired expression.

"It's a new year, but it doesn't feel like a new year."

Ellie shook her head as if she didn't even want to think about it.

"It really was the worst December."

I don't even know how Christmas and New Year's Eve passed.

As the financial markets fluctuated day after day, Ellie worked late every day and was only able to rest for Christmas Day.

Even on that day, she was so tired that she just slept at home.

Just two months ago, the global economy was in a moderate growth phase. As this atmosphere was overturned in an instant, everyone reacted as if they didn't know what was going on.

Experts all raised their voices, saying that this year would be dangerous, and companies couldn't even properly set up a one-year plan.

At the end of the year, governments around the world struggled to defend their exchange rates, but due to the collapse of the Chinese stock market, capital outflow, and the Fed's hint of additional rate hikes, the dollar's strength intensified, and the financial statements of banks and companies were in a mess.

Compared to other countries, the won was holding up relatively well.

Hyun-joo noona gave a wry smile.

"It's a funny situation. The US, which drove the global economy into a recession with the subprime mortgage crisis, has recovered, but now other countries are collapsing."

Thanks to the California restoration project, the commercialization of autonomous electric vehicles, and the growth of internet companies, the US economy is enjoying a boom, but many countries have to worry about recession and deflation.

Ellie asked.

"What on earth is the US thinking? They caused the crisis, then released money all over the world to overcome it, and now they're collecting it without even caring about the situation in other countries."

When the Asian financial crisis broke out, South Korea implemented strong austerity measures as directed by the IMF, such as raising interest rates, privatizing public enterprises, selling assets, and reducing personnel in the public sector.

So what was the US's response during the financial crisis?

Surprisingly, it was the exact opposite.

They lowered interest rates to release money, supported private companies to turn them into public enterprises, bought assets, and increased jobs in the public sector.

The astronomical amount of money released through low interest rates and quantitative easing spread throughout the world, causing an asset bubble. But when they suddenly announced that they would collect the money they had been scattering, another uproar ensued.

The US caused the global financial crisis, the US scattered the dollars, and the US is the one collecting them.

From the perspective of emerging countries, they are just standing by and being hit by shocks every time, so it's a maddening situation. Whether you like it or not, this must be the international reality.

"It was triggered by the US interest rate hike, but it was something that would have burst sooner or later even if it was left alone. If not this year, it would have burst next year, and if not next year, the year after that."

Ellie nodded.

"Everyone knew it was a crisis, but they just let it be. They should have prepared in advance."

The theory of a global economic crisis is not something that emerged a day or two ago. Everyone knows well that they need to reduce debt and carry out industrial reform and restructuring.

But no one prepared properly, and they were intoxicated with money and spent lavishly. Even the countries that were already in crisis had no intention of implementing austerity or repaying their debts. Even though the national finances were in a mountain of debt, politicians only thought about the next election and spouted populist policies.

Looking at what other countries are doing these days, it's strange to think of South Korea, which faithfully paid off its debts by even taking out the gold rings from its closets.

Would the situation have been different if there had been more time?

There are many who take advantage of a crisis to make a profit. Perhaps I am one of them.

So, do the people who created the crisis and the people who did nothing even though they knew it was a crisis have no responsibility for this?

I recalled Grace Rothschild's words and muttered.

"What is meant to happen is bound to happen."

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