China’s mortgage boycotts get messy
A movement to boycott mortgage payments has spread to nearly 100 cities across China in recent days, as angry buyers protest construction delays in already-purchased homes. Estimates vary on the total amount of at-risk mortgages, but most analysts put the figure between 150 billion and 370 billion USD, out of 5.7 trillion USD of total mortgages on Chinese financial institutions’ balance sheets as of March.
This risk here is that the mortgage debacle could have cascading effects. Chinese banks may have more nonperforming loans than they realize. Developers may quickly encounter cash flow problems if mortgage payments and pre-sale revenues dry up, in turn forcing them to default on loans, bonds, and other obligations. But the Chinese government is also adept at stabilizing situations, and authorities are in damage control mode: Regulators have urged banks to meet the financing needs of developers, and are reportedly considering giving homeowners a grace period on mortgage payments.
A growing US-South Korea manufacturing alliance
On a trip to Asia this week, US Treasury secretary Janet Yellen made her pitch for closer US-South Korea trade to counter China’s unfair trade practices. This comes on the heels of South Korean firms announcing a string of major investments in the US: Battery maker LG Energy Solutions intends to invest in a 1.4 billion USD battery factory in Arizona (though inflation may upend those plans), while LG Chem will invest over 11 billion USD through 2025 in its EV and battery materials business in the US. The big question underlying these agreements is how much they actually provide counterweights to China’s trade clout – considering Korean manufacturers’ heavy exposure to China.
Stellantis pulls back on its China JVs…
Stellantis has called it quits on its loss-making joint venture with China’s state-owned Guangzhou Automobile Group (GAC), after the Amsterdam-headquartered automaker’s attempts increase its share in the partnership were stymied by its Chinese counterparts. With the JV’s termination, Stellantis is shutting down the only Jeep plant in China, opting instead for an “asset-light” strategy of importing the vehicles for sale. The decision comes just days after Stellantis announced it would be parting ways with a separate Chinese JV partner, Dongfeng Motor: On Monday, the two companies agreed on a share repurchase framework that will allow Dongfeng Motor to fully exit the JV.
These back-to-back reversals reflect some of the difficulties that foreign carmakers are facing in China, especially as the country’s domestic, government-supported players become more competitive internationally. But for all the hazards ahead, it doesn’t seem as if other incumbent international auto players expect to pull off the road for real any time soon: For example, at the end of June, BMW opened a new electric car plant in China; this year it also increased its stake in its Chinese joint-venture to 75 percent.
…While Ford’s EV supply chain brings it closer to China
And the dawn of the EV revolution seems likely to bolster China’s place in the international automotive sector. Ford this week announced a flurry of supply deals as it accelerates its EV push – including a major one with Chinese battery maker CATL for lithium-iron phosphate (LFP) battery packs. The two firms will explore further cooperation on battery supplies for Ford’s markets China, Europe, and North America.
Ford has also announced a series of battery raw materials sourcing deals, including non-binding agreements with Rio Tinto for lithium, and BHP and Huayou for nickel. Ford is developing EV battery chain partnerships in the US: too On July 21, it announced a binding offtake deal for lithium from a mine in Nevada. All told, Ford says it has secured 70 percent of the battery capacity necessary for its planned production capacity of two million EVs by 2026.
Russian fertilizer gets a pass, with a little help from inflation