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China’s Real Estate Crisis?, Turkey, Egypt’s Water Supply, LatamPolitik, and Week in Review

Blog / Weekly Review

China’s Real Estate Crisis?, Turkey, Egypt’s Water Supply, LatamPolitik, and Week in Review

Is China on the verge of a real estate crisis? The dean of a Chinese think tank called the Academy of New Supply-Side Economics published an article supporting the implementation of a real estate tax in China and assessing that recent Chinese Communist Party (CCP) statements suggest central leadership has already decided to move forward with the controversial measure. Meanwhile, China’s Evergrande terminated an agreement to sell a controlling stake to rival developer Hopson for ~$2.6 billion. People’s Bank of China (PBOC) Governor Yi Gang sought to calm markets by insisting that Evergrande’s crisis was isolated and not indicative of a broader systemic problem.

What it means: It is technically possible that Evergrande is an isolated incident, though that strains credulity. More like, Evergrande is the canary in the coal mine, and numerous Chinese property developers are likely facing similar problems. That, however, does not mean that the Chinese government is unequal to the task of containment, or at the very least, metabolizing enough of the bubble to avert catastrophe. Unless you are a Chinese property developer, we think it is a little early to panic, and we note that the Chinese government doesn’t seem to be flinching. Indeed, it is even raising the extremely controversial notion of real estate taxes just as Evergrande seems on the verge of collapse.

What on earth is Turkey doing? Turkey slashed interest rates again, by 2 full percentage points. The unexpected move came after Turkish President Recep Tayyip Erdogan dismissed three senior central bank officials who had opposed the decision to cut interest rates by 1 percentage point last month. The Turkish lira made new record lows on the dollar as a result.

What it means: Turkey’s central bank claims inflation (now just under 20 percent) is being caused by transitory supply-side factors and that lower interest rates will help curb inflation. That is a sophisticated way of saying 2+2=5. We are at a loss to explain the logic behind Turkey’s self-inflicted currency debasement. If any of you can make sense of this, please, reply back and let us know your thoughts.

Where will Egypt get its water in the future? Egypt published a new plan to quadruple its water desalination capacity over the next five years via grants to private companies from its sovereign wealth fund.

What it means: The plan calls for 17 plants to be constructed in five years and to be powered by solar panels. The government plans to buy the water and re-sell it to domestic and industrial consumers at a discount. Aka, Egypt is getting rid of bread subsidies and introducing water subsidies. A telling glimpse into the future of an increasingly arid region.

Why haven’t you signed up for LatamPolitik yet? Brazilian President Jair Bolsonaro is pushing for a new aid program for Brazil’s poorest citizens, dubbed Auxílio Brasil, to provide 400 reais (roughly $70) to individuals in need. That is 100 more reais per person than  Economy Minister Paulo Guedes advised Bolsonaro the Brazilian government could afford under current fiscal rules, to the tune of 30 billion reais (about $5.4 billion).

What it means: The answers to all your questions are here. OK, not all your questions. But some of them!

Honorable mention

THE SPICE MUST FLOW.

In the U.S., a bipartisan bill that includes $52 billion to strengthen the U.S. semiconductor industry and provide government support for increasing domestic fab capacity is delayed in Congress.

The Itaipu Dam, located between Paraguay and Brazil on the Parana River, recorded its lowest output since it began operating in 2005.

Polish Prime Minister Mateusz Morawiecki came under scathing criticism from European Commission President Ursula von der Leyen and from the European Parliament more generally during a tense debate on Tuesday.

The European Parliament approved and published the text of a report on strengthening EU-Taiwan relations by a margin of 580-26 (with 66 abstentions).

Secretary-General Jens Stoltenberg said NATO would expand its focus to China in the years ahead.

U.S. Secretary of State Antony Blinken made his first official visit to South America, paying visits to Ecuadorian President Guillermo Lasso and Colombian President Ivan Duque.

The UK and New Zealand reached an agreement in principle on a free trade deal.

Bangladesh witnessed unrest and violence against Hindus earlier this week, resulting in the deaths of two Hindus and the destruction of dozens of homes.

Alibaba unveiled a design for a new server chip based on 5-nanometer technology.

Azerbaijan’s State Security Service detained several Shiite clerics.