Suddenly China Looks Vulnerable

Take a little dollar rally, add some negative sentiment and all of a sudden the outlook shifts. Of course nothing real has changed, but what was potential is becoming more possible as various markets reach more and more "extreme" levels.

Rising Dollar Presses Asian Borrowers

Asian companies that used cheap U.S. dollar loans to pile up heavy debts are facing a dual threat: the resurgent dollar and the likelihood of higher interest payments as the U.S. moves to raise rates.

In recent years, when economic growth was strong and interest rates were low, banks doled out billions of dollars in loans to companies in Asia. Now, as China’s economy—Asia’s growth engine—weakens, those companies face a growing burden. Reduced economic growth is cutting into earnings, and more local currency is needed to make dollar-denominated interest payments.

The burden is especially severe for borrowers in Southeast Asia, where currencies are falling the most, although any weakening of China’s currency would also pressure companies there.

China Property Shows Default Lines

A dire scenario for the China property sector goes like this: As one or two issuers default on bonds, investors clear out, sending yields soaring and making it impossible to refinance existing debt. As companies scramble for cash, they dump projects and land onto the market at cut-rate prices. This further erodes investor confidence. Contagion spreads.

How long before the WSJ and other mainstream outlets start sounding like Chinese dooom bloggers? Chinese Debate Yuan Risk in the Wake of Ruble Collapse, Liu Junluo Sees Path to 1997 Repeat, Niu Dao Sees Path to Latin American Crisis of 1980s

I've covered/speculated on potential yuan weakness in posts such as Chinese Yuan Could Devalue 50% Or More. More under the renminbi tag.