“It Will Be Really, Really Bad”: China Faces Financial Armageddon With 85% Of Businesses Set To Run Out Of Cash In 3 Months

Sunday, February 23, 2020
By Paul Martin

by Tyler Durden
ZeroHedge.com
Sun, 02/23/2020

For the past two weeks, even as the market took delight in China’s doctored and fabricated numbers showing the coronavirus spread was “slowing”, we warned again and again that not only was this not the case (which recent data out of South Korea, Japan and now Italy has confirmed), but that for all its assertions to the contrary, China’s workers simply refused to go back to work (even with FoxConn offering its workers extra bonuses just to return to the factory) and as a result the domestic economy had ground to a halt as we described in:

China Has Ground To A Halt: “On The Ground” Indicators Confirm Worst-Case Scenario
China Is Disintegrating: Steel Demand, Property Sales, Traffic All Approaching Zero
Terrifying Charts Show China’s Economy Remains Completely Paralyzed

Unfortunately, it’s not getting any better as the latest high frequency updates out of China demonstrate:

Also unfortunately, it is getting worse, because as we explained several weeks ago, China is now fighting against time to reboot its economy, and the longer the paralysis continues, the more dire the outcome for both China’s banks and local companies. And since it is no longer just “scaremongering” by “conspiracy blogs”, but rather conventional wisdom that China may implode, here is a summary of how the narrative that “it will all be over by mid-March” is dramatically changing.

Let’s start with Chinese businesses: while China’s giant state-owned SOEs will likely have enough of a liquidity lifeblood to last them for 2-3 quarters, it is the country’s small businesses that are facing a head on collision with an iceberg, because according to the Nikkei, over 85% of small businesses – which employ 80% of China’s population – expect to run out of cash within three months, and a third expect the cash to be all gone within a month.

Should this happen, not only will China’s economy collapse, but China’s $40 trillion financial system will disintegrate, as it is suddenly flooded with trillions in bad loans.

Take the case of Danny Lau who last week reopened his aluminum facade panel factory in China’s southern city of Dongguan after an extended Lunar New Year break. To his shock, less than a third of its roughly 200 migrant workers showed up.

“They couldn’t make their way back,” the Hong Kong businessman said. Most of his workers hail from central-western China, including 11 from Hubei Province, the epicenter of the coronavirus outbreak that has killed more than 2,000 people. Many said they had been banned from leaving their villages as authorities race to contain the epidemic.

Lau’s business had already been hurt by the 25% tariff on aluminum products the U.S. imposed in its tit-for-tat trade war with China. Now he worries the production constraints will give American customers another reason to cancel orders and switch to Southeast Asian suppliers. The virus is making a bad situation “worse,” he said.

Lau is not alone: this same double blow is hitting small and midsize enterprises across China, prompting a growing chorus of calls for the government to step in and offer lifelines. The stakes could not be higher: These smaller employers account for 99.8% of registered companies in China and employ 79.4% of workers, according to the latest official statistics. They contribute more than 60% of gross domestic product and, for the government, more than 50% of tax revenue. In short: they are the beating heart of China’s economy.

The Rest…HERE

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