With rising default risks from Country Garden Holdings Co to China’s leading asset management firm, Zhongzhi Enterprise Group Co, concerns are growing that a slump in the Chinese property market could trigger a wider financial crisis, creating a potential spillover effect that would impact the broader economy. Analysts worry that it would lead to a “Lehman moment” for China if Beijing stops short of interventions to stem any domino effects its financial system might experience.
The term “Lehman moment” refers to a situation in which the problems of one company or one seemingly minor component of an economy turn out to be so large that they become everyone’s problem, just like the bankruptcy of Lehman Brothers Holdings Inc in September 2008, which triggered a broader market rout for US stocks before developing into the global financial crisis of 2008 and 2009.
It remains unknown if a Lehman moment would take shape in China, but what is already certain is that the ongoing downturn in China’s property sector can be expected to persist for a while, and the systemic risks from rising defaults might hurt its economic growth further. Against this backdrop, the People’s Bank of China unexpectedly cut its key interest rates on Tuesday, two months after its previous cut, but there is an increasing consensus that the Chinese central bank might need to cut rates further and extend its monetary easing to ensure ample liquidity in its financial system.
The fast-rising economic risks in China might come as a surprise for some, but given the latest developments related to its property developers and investment trust firms, Taiwan’s financial institutions’ efforts to reduce their exposure to China over the past few years have been reasonable and correct. While the three major financial industries in Taiwan — banking, insurance, and securities and futures — reported aggregate exposure of NT$1.12 trillion (US$35.06 billion) to China as of the end of June, the risks are controllable, the Financial Supervisory Commission (FSC) said on Tuesday.
Taiwanese financial firms have slashed their exposure to the world’s second-largest economy quickly and sizably. The FSC’s data found that Taiwan’s financial holding companies’ aggregate exposure to China dropped to a historic low of 8.62 percent of their combined overseas investments at the end of June, while Taiwanese banks’ Chinese market exposure — including corporate lending, investments and interbank loans — also fell to NT$1.01 trillion as of June, or 23.91 percent of their combined net worth, both the lowest levels on record.
The result should come as no surprise to anyone. Financial institutions in Taiwan and around the world are often under special supervision and strict regulation, because their activities and services would directly influence economic performance and consumer rights. They are highly sensitive to risks and naturally adjust their overseas investments or credit profiles when they see fit.
Bad news has repeatedly broken out in China’s real-estate industry in recent years with the risk of a snowballing economic downturn. A broader sense of nervousness had already emerged among investors as early as in the second half of last year, creating no reason for Taiwanese banks to increase investments or loans in China. Instead, if there was a chance for them to reduce investment holdings or tighten credit lines, they would not hesitate to do so.
However, more actions are still needed if Taiwanese financial firms aim to promptly respond to any major financial events in China. To tackle headwinds, firms must review and adjust their holdings of Chinese securities and bolster risk management after extending loans to the Chinese market.
The gutting of Voice of America (VOA) and Radio Free Asia (RFA) by US President Donald Trump’s administration poses a serious threat to the global voice of freedom, particularly for those living under authoritarian regimes such as China. The US — hailed as the model of liberal democracy — has the moral responsibility to uphold the values it champions. In undermining these institutions, the US risks diminishing its “soft power,” a pivotal pillar of its global influence. VOA Tibetan and RFA Tibetan played an enormous role in promoting the strong image of the US in and outside Tibet. On VOA Tibetan,
Sung Chien-liang (宋建樑), the leader of the Chinese Nationalist Party’s (KMT) efforts to recall Democratic Progressive Party (DPP) Legislator Lee Kun-cheng (李坤城), caused a national outrage and drew diplomatic condemnation on Tuesday after he arrived at the New Taipei City District Prosecutors’ Office dressed in a Nazi uniform. Sung performed a Nazi salute and carried a copy of Adolf Hitler’s Mein Kampf as he arrived to be questioned over allegations of signature forgery in the recall petition. The KMT’s response to the incident has shown a striking lack of contrition and decency. Rather than apologizing and distancing itself from Sung’s actions,
US President Trump weighed into the state of America’s semiconductor manufacturing when he declared, “They [Taiwan] stole it from us. They took it from us, and I don’t blame them. I give them credit.” At a prior White House event President Trump hosted TSMC chairman C.C. Wei (魏哲家), head of the world’s largest and most advanced chip manufacturer, to announce a commitment to invest US$100 billion in America. The president then shifted his previously critical rhetoric on Taiwan and put off tariffs on its chips. Now we learn that the Trump Administration is conducting a “trade investigation” on semiconductors which
By now, most of Taiwan has heard Taipei Mayor Chiang Wan-an’s (蔣萬安) threats to initiate a vote of no confidence against the Cabinet. His rationale is that the Democratic Progressive Party (DPP)-led government’s investigation into alleged signature forgery in the Chinese Nationalist Party’s (KMT) recall campaign constitutes “political persecution.” I sincerely hope he goes through with it. The opposition currently holds a majority in the Legislative Yuan, so the initiation of a no-confidence motion and its passage should be entirely within reach. If Chiang truly believes that the government is overreaching, abusing its power and targeting political opponents — then
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