Asia’s Richest Man Li Ka Shing has been in an asset selling binge in China

Watch what smart money does rather than what they say.

Asia’s richest man has been in an asset selling spree in China. Sovereign Man’s Simon Black explains:

Here’s a guy you want to bet on– Li Ka-Shing.

Li is reportedly the richest person in Asia with a net worth well in excess of $30 billion, much of which he made being a shrewd property investor.

Li Ka-Shing was investing in mainland China back in the early 90s, way back before it became the trendy thing to do. Now, Li wants out of China. All of it.

Since August of last year, he’s dumped billions of dollars worth of his Chinese holdings. The latest is the $928 million sale of the Pacific Place shopping center in Beijing– this deal was inked just days ago.

Once the deal concludes, Li will no longer have any major property investments in mainland China.

This isn’t a person who became wealthy by being flippant and scared. So what does he see that nobody else seems to be paying much attention to?

Simple. China’s credit crunch.

After years of unprecedented monetary expansion that has put the economy in a precarious state, the Chinese government has been desperately trying to reign in credit growth.

The shadow banking system alone is now worth 84% of GDP according to an estimate by JP Morgan. The IMF pegs total private credit at 230% of GDP, jumping by 100% in the last few years.

Historically, growth rates of these proportions have nearly always been followed by severe financial crises. And Chinese leaders are doing their best to engineer a ‘soft landing’.

If they’re successful, the world will only see major drops in global growth, stocks, property, and commodity prices.

If they fail, the spillover could become pandemic.

This isn’t important just for Asian property tycoons like Li Ka-Shing. Even if you don’t know Guangzhou from Hangzhou from Quanzhou, there are implications for the entire world.

Read the rest here

Mr. Li Ka Shing’s last sale concluded last week, from wantchinatimes.com (bold mine)

Despite claims by Asia's richest man that he has not offloaded his mainland investments, Hong Kong multi-billionaire Li Ka-shing has got rid of over 20 billion yuan (US$3.23 billion) in Chinese property holdings since August last year.

The latest is the HK$7.2 billion (US$930 million) sale of Beijing's Pacific Century Place shopping center by Pacific Century Premium Developers, a company headed by son Richard Li. When the sale is completed in August, the company will have no more major investments in the mainland.

This comes amidst more signs of big trouble in the big China.

Officials of a local government have reportedly been scrambling to settle a troubled steel maker’s debt.

From Caixin online:

Officials in a city in northern China have been busy recently sorting out a steelmaker's debt mess that could involve as much as 20 billion yuan, even as the firm's owner avoids attending meetings on the matter, sources close to the situati0n say.

Highsee Iron and Steel Group Co. Ltd., which is based in Yuncheng City's Wenxi County, ceased production on March 18. It has seen a host of creditors including big banks line up to get their money back.

And the fractures from the humungous credit financed property boom has been accelerating or intensifying as vacancy rates have been ballooning even in prime areas. From South China Morning Post: 

According to property firm Jones Lang LaSalle, vacancies in Grade A office buildings in the area's major cities will stay high in the coming years due to weaker-than-expected demand.

While a loan default by a developer in Zhejiang sparked fears of a collapse of the residential property sector, the situation in the office sector appears to be even worse . Residential property developers can at least slash prices to dispose of flats to recover part of their investment. Half-empty buildings, however, are not just white elephants but financial black holes.

Jones Lang LaSalle found that at the end of last year, occupancy rates for Grade A office buildings stood at 58 per cent in Wuxi, Jiangsu, and 30 per cent in the Zhejiang capital, Hangzhou . In other major delta cities, which together make up the most vibrant and developed regional economy on the mainland, occupancy rates also hovered around 30 per cent last year.

In Wuxi, the vacancy rate was expected to stand at 48 per cent in 2016, it said. By the end of that year, the stock of prime office space in the city would nearly triple from last year's amount to 565,000 square metres

And here is what delusions that spawns a boom-bust cycle have been made of: (bold mine)

Over the past decade, delta cities have pulled out all the stops to launch one new town one after another. Located on the suburban fringes of each city, they are designed to accommodate millions of residents and attract more corporate investors.

The boom was based on officials' unshakeable faith that sustainable growth of delta cities would last for decades.

Developers splashed out billions of yuan to build office buildings, shopping malls and entertainment complexes in the new towns, believing an affluent population of 75 million would be enough to support their businesses. Unfortunately, reshuffles of municipal officials led to dramatic changes in urban development plans. New leaders would map out their own blueprints, earmarking more untapped land for new high-rise residential areas or industrial zones.

This resonates with what’s been going around in ASEAN including the Philippines. The difference is that China seems at an inflection point while the ASEAN contemporaries are approaching the inflection point where troubles in China (Japan, Ukraine or elsewhere) can hasten the process.

Nonetheless the estimated risks of transmission or contagion via merchandise trade with China from George Magnus (Business Insider)

The bottom line is that the mainstream has been severely underappreciating the risks from China’s boom bust cycle which could also be a major source for a global economic and financial Black Swan.