Ukraine is in quite a quandary. It’s at war with an aggressive Russian neighbor and at the same time is caught in a growing stand-off between its key Western ally the U.S., and it main trading partner China.
The competition between Washington and Beijing has already been felt in Ukraine. In fact, a Chinese company is currently taking the Ukrainian government to an international tribunal, seeking $4.5 bn in compensation over its scuttled attempt to take over the MotorSich advanced aerospace company.
“Clearly, the U.S.-Chinese rivalry needs to be factored in by Kyiv and proper attention paid also to its economic aspects.“
So what should we be aware of right now based on the experience of the past?
Well, for one that roughly every 10 years, the world experiences a financial crisis. It’s impossible to predict them exactly. However, paying attention to the signals is important for each of us.
As the West discusses a possible Russian military invasion of Ukraine, much further east, one of China's largest developers, Evergrande, has declared its first default – so far, a technical one. But this already means that the company failed to repay its dollar debt.
Against the background of the military threat, such news goes largely unnoticed, but it worries financiers around the world. For the failure of such a giant threatens another global crisis, which can hurt the fragile post-pandemic economy.
Moreover, in recent years, Beijing has indeed been ahead of the rest of the planet in economic growth, which has not been accepted lightly by American politicians and which worries them.
And let's not forget that China is the third contender for global leadership during the century since World War II.
First, in the 1950s and 1960s, the Soviet Union took part in the race for supremacy. But in the 1970s, the Soviet economy first stopped growing, and later, in the 1980s, entered into a severe crisis, resulting in record-breaking queues around the clock at every store.
Subsequently, Japan became the next contender in the struggle for economic primacy, achieving the highest growth rates among the developed countries of that time. The Japanese economic miracle was the wonder of the moment. But in the 1980s, the Japanese real estate market experienced a crisis when many people could not pay back their loans and the bubble simply burst.
“It took Japan at least a decade to recover from the crisis, but it was not possible to repeat the previous growth.“
And now China. And again, the real estate market. Little is said about the fact that there are whole ghost towns in China, but not ones of the usual sort, where life existed and died out, but those where no one ever lived. To provide housing for the population, the Chinese government is building cities. But people do not have money for housing.
One of the property developers, Evergrande, is one of China's largest companies, with a debt of $305 bn. Evergrande's default marks not only the "beginning of the end" of the Chinese construction empire, but also the possible collapse of a significant part of the market.
The company owes money to 171 Chinese banks and 121 financial companies. Its default could lead to a significant reduction in lending in the country. And China can pull down other world markets.
That's why financiers are watching the Evergrande situation so closely. The world has already seen how artificially built economies crash in an instant, trying to compete with the American open market model. And Evergrande may be the first signal that the third attempt will also not succeed in overtaking the free American economy.
For Ukraine, any new global financial crisis will have severe consequences and the consequences of the China’s economic rivalry with the U.S. needs to be followed very carefully.
