1 00:00:00,440 --> 00:00:03,600 Speaker 1: The coin Bureau Podcast is a production of I Heart Radio. 2 00:00:04,080 --> 00:00:07,080 Speaker 1: Hello everyone, and welcome to the new Wednesday edition of 3 00:00:07,200 --> 00:00:10,600 Speaker 1: the coin Bureau Podcast. For these weekly episodes, I've picked 4 00:00:10,640 --> 00:00:13,680 Speaker 1: out two of my favorite videos from coin Bureau's YouTube 5 00:00:13,720 --> 00:00:17,520 Speaker 1: channel to present to you in podcast form. The audio 6 00:00:17,600 --> 00:00:20,400 Speaker 1: you're about to hear is from those videos I've chosen 7 00:00:20,480 --> 00:00:22,560 Speaker 1: this week. Many of you have been in touch to 8 00:00:22,600 --> 00:00:25,239 Speaker 1: ask whether it's possible to listen to our videos in 9 00:00:25,320 --> 00:00:29,440 Speaker 1: podcast format, and so your wish is my command. This week, 10 00:00:29,480 --> 00:00:32,240 Speaker 1: I've chosen our videos on the unfolding crisis in Sri 11 00:00:32,320 --> 00:00:36,319 Speaker 1: Lanka and the bank runs recently witnessed in China. I've 12 00:00:36,400 --> 00:00:39,760 Speaker 1: chosen these two because they deal with macroeconomic issues that 13 00:00:39,840 --> 00:00:43,279 Speaker 1: will impact upon the wider global economy, even though they 14 00:00:43,320 --> 00:00:47,280 Speaker 1: appear on the surface to be merely localized problems. For 15 00:00:47,320 --> 00:00:49,880 Speaker 1: those of us who watch the crypto markets closely, it's 16 00:00:49,880 --> 00:00:53,920 Speaker 1: important to remember that factors beyond crypto itself can affect 17 00:00:53,960 --> 00:00:57,720 Speaker 1: prices too. Our globalized world is often bound more tightly 18 00:00:57,760 --> 00:01:01,680 Speaker 1: together than we might think. Both videos we're fascinating to research, 19 00:01:01,760 --> 00:01:04,080 Speaker 1: and I hope you enjoy listening to them. I'll be 20 00:01:04,120 --> 00:01:06,880 Speaker 1: back talking crypto with Mike very soon, so be sure 21 00:01:06,920 --> 00:01:09,920 Speaker 1: to stay tuned, and if you want even more content 22 00:01:09,959 --> 00:01:12,720 Speaker 1: from coin Bureau, be sure to visit our YouTube channel 23 00:01:12,920 --> 00:01:23,880 Speaker 1: and visit us on social media too. In these times 24 00:01:23,959 --> 00:01:27,360 Speaker 1: of economic uncertainty, it's not the news stories that are 25 00:01:27,400 --> 00:01:30,440 Speaker 1: being covered that need to be focused on, but those 26 00:01:30,520 --> 00:01:35,039 Speaker 1: that aren't. And when some stories are suppressed by the 27 00:01:35,080 --> 00:01:38,160 Speaker 1: powers that be, you know they've got to be big. 28 00:01:38,959 --> 00:01:41,399 Speaker 1: Right now, there are things going on that could be 29 00:01:41,520 --> 00:01:45,760 Speaker 1: the proverbial canaries in the economic coal mine, and one 30 00:01:45,800 --> 00:01:50,440 Speaker 1: of these canaries is Chinese bank runs. In this video, 31 00:01:50,480 --> 00:01:53,200 Speaker 1: I'm going to tell you exactly why you need to 32 00:01:53,240 --> 00:02:04,160 Speaker 1: be keeping a very close eye on this little birdie. Now, 33 00:02:04,160 --> 00:02:06,480 Speaker 1: if this is the first time that you're hearing about 34 00:02:06,640 --> 00:02:11,280 Speaker 1: Chinese bank runs, then that's probably by design. China is 35 00:02:11,360 --> 00:02:14,840 Speaker 1: not a country that's well known for its transparency, and 36 00:02:14,960 --> 00:02:20,000 Speaker 1: protests of any kind are routinely suppressed. This year has 37 00:02:20,040 --> 00:02:23,600 Speaker 1: seen some particularly brutal suppression, given that it's the year 38 00:02:23,720 --> 00:02:27,600 Speaker 1: of the twentieth Party Congress and z Jimping wants no 39 00:02:27,760 --> 00:02:34,200 Speaker 1: disruptions to a smooth transition into his unprecedented third term. 40 00:02:34,240 --> 00:02:37,000 Speaker 1: But over the past three months, there have been several 41 00:02:37,080 --> 00:02:41,440 Speaker 1: bank runs taking place across China, bank runs on smaller 42 00:02:41,720 --> 00:02:46,000 Speaker 1: rural banks where an estimated one point five billion dollars 43 00:02:46,040 --> 00:02:50,280 Speaker 1: worth of deposits have been lost. But before diving into 44 00:02:50,320 --> 00:02:53,720 Speaker 1: the runs themselves, it's important to have a brief understanding 45 00:02:53,880 --> 00:02:58,960 Speaker 1: of China's banking landscape. It helps to understand exactly how 46 00:02:59,000 --> 00:03:04,280 Speaker 1: we got here why it's such a precarious situation. Basically, 47 00:03:04,320 --> 00:03:07,680 Speaker 1: in China, there are thousands of small rural banks that 48 00:03:07,720 --> 00:03:11,360 Speaker 1: are meant to serve only the local population. If we 49 00:03:11,400 --> 00:03:15,480 Speaker 1: include the slightly larger commercial rural banks, the total number 50 00:03:15,480 --> 00:03:18,480 Speaker 1: of banks that fall into these category numbers over thirty 51 00:03:18,520 --> 00:03:22,079 Speaker 1: eight hundred. They hold assets to the equivalent of about 52 00:03:22,240 --> 00:03:26,440 Speaker 1: three hundred billion dollars, around twelve percent of total banking 53 00:03:26,440 --> 00:03:30,440 Speaker 1: assets in China. Structurally, you can think of these banks 54 00:03:30,440 --> 00:03:33,600 Speaker 1: as akin to credit unions in the United States. However, 55 00:03:33,639 --> 00:03:36,440 Speaker 1: there are supposed to be strict limits on who is 56 00:03:36,480 --> 00:03:40,360 Speaker 1: allowed to open accounts at these banks. In China, such 57 00:03:40,400 --> 00:03:44,800 Speaker 1: banks are not allowed to expand outside of their locality. 58 00:03:45,000 --> 00:03:47,680 Speaker 1: The role of these banks are supposed to play is simple, 59 00:03:47,880 --> 00:03:51,400 Speaker 1: to support the local economy of small farmers and small 60 00:03:51,520 --> 00:03:56,000 Speaker 1: to medium sized enterprises. The problem is that these banks 61 00:03:56,040 --> 00:04:01,119 Speaker 1: were obviously highly dependent on the local economy. Moreover, as 62 00:04:01,280 --> 00:04:04,800 Speaker 1: increasing numbers of people migrate away from rural areas to 63 00:04:04,880 --> 00:04:08,600 Speaker 1: the cities, the customer base of these banks starts to shrink. 64 00:04:09,640 --> 00:04:12,360 Speaker 1: And if there is one thing that China has been 65 00:04:12,400 --> 00:04:16,240 Speaker 1: known for over the past ten years, it is rapid urbanization. 66 00:04:16,760 --> 00:04:21,159 Speaker 1: Millions of people have indeed moved to the cities. The 67 00:04:21,279 --> 00:04:24,280 Speaker 1: natural result of this was a loss of customers for 68 00:04:24,320 --> 00:04:28,120 Speaker 1: these banks, and because they could not expand out their localities, 69 00:04:28,320 --> 00:04:31,080 Speaker 1: they needed to find a way to bring in more customers. 70 00:04:31,760 --> 00:04:34,840 Speaker 1: As such, they started to turn their attention to attracting 71 00:04:34,880 --> 00:04:40,000 Speaker 1: more customers through online platforms, sometimes those who lived beyond 72 00:04:40,320 --> 00:04:45,200 Speaker 1: the bank's catchment areas. While this was technically illegal, the 73 00:04:45,320 --> 00:04:49,520 Speaker 1: rules were not being enforced, and in order to entice 74 00:04:49,560 --> 00:04:52,360 Speaker 1: these customers to bring their funds to the banks, they 75 00:04:52,400 --> 00:04:57,800 Speaker 1: advertised higher interest rates with flexible terms what could go wrong. 76 00:04:58,640 --> 00:05:01,719 Speaker 1: This led many out towners to invest their money in 77 00:05:01,760 --> 00:05:06,599 Speaker 1: these banks through these online lending platforms. They didn't expect 78 00:05:06,640 --> 00:05:10,800 Speaker 1: this to be a risky investment. That's because unlike prior 79 00:05:10,920 --> 00:05:14,440 Speaker 1: p to P loan scandals in China, these were banks 80 00:05:15,160 --> 00:05:18,440 Speaker 1: people always trusted that their money would be available to 81 00:05:18,520 --> 00:05:23,120 Speaker 1: them thanks to government deposit insurance schemes. Anyways, as the 82 00:05:23,160 --> 00:05:27,680 Speaker 1: People's Bank of China PBOC continued with its lacks monetary policy, 83 00:05:28,080 --> 00:05:31,920 Speaker 1: interest rates in the economy continued to decline. For example, 84 00:05:32,080 --> 00:05:35,800 Speaker 1: Bank of China, one of China's big four state owned banks, 85 00:05:35,839 --> 00:05:38,680 Speaker 1: offered interest rates of two point seven five percent on 86 00:05:38,720 --> 00:05:42,160 Speaker 1: a five year fixed deposit. So when you have a 87 00:05:42,279 --> 00:05:45,200 Speaker 1: rural bank that's offering you rates of between four point 88 00:05:45,240 --> 00:05:49,839 Speaker 1: one and four point five it's particularly alluring. This meant 89 00:05:50,000 --> 00:05:53,279 Speaker 1: more and more people continued to deposit their funds into 90 00:05:53,320 --> 00:05:57,800 Speaker 1: these banks through their online platforms. Now, the only problem 91 00:05:57,880 --> 00:06:01,320 Speaker 1: is that in order to keep generating those returns, the 92 00:06:01,360 --> 00:06:05,479 Speaker 1: banks have to start taking on progressively more risk and 93 00:06:05,880 --> 00:06:09,520 Speaker 1: stop me if you've heard this one before. As a bank, 94 00:06:09,720 --> 00:06:12,159 Speaker 1: this means that you have to start giving out loans 95 00:06:12,200 --> 00:06:16,120 Speaker 1: to companies and people who are less than credit worthy. 96 00:06:16,400 --> 00:06:20,039 Speaker 1: And in China there were a lot of these companies 97 00:06:20,120 --> 00:06:24,279 Speaker 1: and they were taking out a shipload of loans, particularly 98 00:06:24,360 --> 00:06:27,359 Speaker 1: in the property sector, something I'll come back to in 99 00:06:27,400 --> 00:06:30,679 Speaker 1: a bit. So this was the lay of the land 100 00:06:30,800 --> 00:06:35,120 Speaker 1: in the Chinese rural banking sector. However, things took a 101 00:06:35,200 --> 00:06:39,560 Speaker 1: turn for the worse. In April this year, at about 102 00:06:39,560 --> 00:06:42,600 Speaker 1: the same time that China was going into broad and 103 00:06:42,680 --> 00:06:46,840 Speaker 1: brutal lockdowns, people who had invested at these rural banks 104 00:06:47,160 --> 00:06:50,480 Speaker 1: began to learn that they didn't have access to their funds. 105 00:06:51,240 --> 00:06:54,920 Speaker 1: On the eighteenth of April, four rural banks in Hanan 106 00:06:54,960 --> 00:06:59,680 Speaker 1: Province froze deposits totally about ten billion You one nearly 107 00:06:59,760 --> 00:07:03,640 Speaker 1: one point five billion U s d. In this writer's 108 00:07:03,680 --> 00:07:06,680 Speaker 1: story from back then, depositors at the bank said that 109 00:07:06,760 --> 00:07:09,720 Speaker 1: they had been communicating with each other via we chat 110 00:07:10,000 --> 00:07:13,559 Speaker 1: as to how they could retrieve their funds. At the time, 111 00:07:13,720 --> 00:07:16,800 Speaker 1: The South China Morning Post spoke to half a dozen 112 00:07:16,840 --> 00:07:20,600 Speaker 1: depositors who said they had not been able to withdraw funds, 113 00:07:20,640 --> 00:07:24,920 Speaker 1: either online or in person, with total deposits ranging from 114 00:07:24,960 --> 00:07:27,960 Speaker 1: two hundred thousand U one to over one point five 115 00:07:28,040 --> 00:07:31,840 Speaker 1: million U one k U s d to two k 116 00:07:32,040 --> 00:07:35,600 Speaker 1: U s d. According to this man in Shanghai quote, 117 00:07:35,840 --> 00:07:38,920 Speaker 1: my friend recommended the bank, saying it had high interest rates. 118 00:07:39,120 --> 00:07:42,800 Speaker 1: I can't access the app right now. There was also 119 00:07:42,920 --> 00:07:45,920 Speaker 1: ambiguity as to whether the deposits with these banks were 120 00:07:45,960 --> 00:07:49,560 Speaker 1: backed by the banking regulator, which further added to the 121 00:07:49,600 --> 00:07:53,880 Speaker 1: confusion and anger. As more and more of these stories spread, 122 00:07:53,960 --> 00:07:57,240 Speaker 1: people decided that they were going to protest at these banks. 123 00:07:57,920 --> 00:08:01,720 Speaker 1: Images started to emerge of citizen outside the local office 124 00:08:01,800 --> 00:08:05,760 Speaker 1: of the China Banking and Insurance Regulatory Commission in Jung 125 00:08:05,880 --> 00:08:09,320 Speaker 1: Joe's city. They were carrying signs that read return my 126 00:08:09,480 --> 00:08:15,120 Speaker 1: savings and other perfectly reasonable demands. Of course, being China, 127 00:08:15,440 --> 00:08:19,400 Speaker 1: news of the protests was heavily suppressed. Protesters were quote 128 00:08:19,640 --> 00:08:23,200 Speaker 1: pushed around by the local police with brute force and 129 00:08:23,560 --> 00:08:27,640 Speaker 1: were blocked from entering the city. But perhaps most dystopian 130 00:08:27,680 --> 00:08:30,640 Speaker 1: of all, citizens who were thought to be traveling into 131 00:08:30,640 --> 00:08:35,120 Speaker 1: a city to protest had their COVID green passes mysteriously 132 00:08:35,280 --> 00:08:39,560 Speaker 1: turn read when they arrived at city checkpoints. Now, in 133 00:08:39,600 --> 00:08:43,920 Speaker 1: a country like China, having a red COVID pass means 134 00:08:44,000 --> 00:08:49,400 Speaker 1: being sent to a government mandated quarantine facility. Can't imagine 135 00:08:49,559 --> 00:08:54,560 Speaker 1: that is much fun than Some protesters were escorted to 136 00:08:54,720 --> 00:08:58,520 Speaker 1: these facilities by armed guards. Others were detained and then 137 00:08:58,600 --> 00:09:02,400 Speaker 1: sent out of the city on turning trains. However, the 138 00:09:02,440 --> 00:09:05,320 Speaker 1: moment that they got back to their home provinces, their 139 00:09:05,360 --> 00:09:10,160 Speaker 1: COVID passes just as mysteriously turned green. Again, just wait 140 00:09:10,360 --> 00:09:14,080 Speaker 1: until they link up those passes to the CBDC China 141 00:09:14,200 --> 00:09:19,360 Speaker 1: is rolling out anyways, Despite these measures, the protests didn't stop. 142 00:09:19,440 --> 00:09:24,640 Speaker 1: In fact, they got bigger. Now. I'd just like to 143 00:09:24,640 --> 00:09:27,400 Speaker 1: give a quick shout out to all those new viewers 144 00:09:27,440 --> 00:09:29,800 Speaker 1: out there today. If this is the first time that 145 00:09:29,800 --> 00:09:32,200 Speaker 1: you're watching Coin Bureau, my name is Guy and on 146 00:09:32,240 --> 00:09:35,000 Speaker 1: this channel we cover everything you just have to know, 147 00:09:35,559 --> 00:09:39,960 Speaker 1: from finance to crypto and global macro. We're unsponsored and 148 00:09:40,040 --> 00:09:43,320 Speaker 1: don't run ads, so you can get the most impartial 149 00:09:43,440 --> 00:09:47,640 Speaker 1: and unimpeded viewing experience. If that's something you want more of, 150 00:09:47,800 --> 00:09:50,319 Speaker 1: then I would really appreciate it if you could give 151 00:09:50,360 --> 00:09:52,880 Speaker 1: me a subscribe, ping that bell as well to make 152 00:09:52,920 --> 00:09:55,199 Speaker 1: sure that YouTube will give you a bell as well 153 00:09:55,400 --> 00:09:59,560 Speaker 1: when a new video is served. Okay, back to our 154 00:09:59,640 --> 00:10:05,319 Speaker 1: schedule program. In mid July, more than one thousand people 155 00:10:05,480 --> 00:10:09,439 Speaker 1: staged a protest outside the Jung Joe Brandt's of the PBOC. 156 00:10:10,160 --> 00:10:13,600 Speaker 1: This was one of the largest protests since the pandemic began, 157 00:10:14,000 --> 00:10:16,960 Speaker 1: and it's safe to say that the government did not 158 00:10:17,400 --> 00:10:20,880 Speaker 1: like it. That's why they sent in the police and 159 00:10:21,000 --> 00:10:25,280 Speaker 1: other security personnel. Many of them were in plain clothes 160 00:10:25,400 --> 00:10:29,960 Speaker 1: as they descended on the protesters. People were violently beaten 161 00:10:30,040 --> 00:10:34,040 Speaker 1: and taken away for peacefully protesting the loss of access 162 00:10:34,200 --> 00:10:38,440 Speaker 1: to their frozen funds. These scenes played out on the news, 163 00:10:38,559 --> 00:10:42,200 Speaker 1: and despite the best attempts at censorship, were also shared 164 00:10:42,280 --> 00:10:46,000 Speaker 1: on local messaging apps like we chat. In the days 165 00:10:46,040 --> 00:10:49,040 Speaker 1: after the protests, the government claimed that they had arrested 166 00:10:49,080 --> 00:10:53,319 Speaker 1: members of a criminal gang that was responsible for the crisis. 167 00:10:53,840 --> 00:10:57,160 Speaker 1: They claimed that the gang had taken control over the 168 00:10:57,200 --> 00:11:02,800 Speaker 1: Henland banks and leveraged their shareholdings by quote manipulating bank executives. 169 00:11:03,720 --> 00:11:06,040 Speaker 1: When it came to those who had deposited their funds 170 00:11:06,080 --> 00:11:08,760 Speaker 1: with the banks, the government said that it would partially 171 00:11:08,760 --> 00:11:12,640 Speaker 1: be covering these deposits with a compensation plan. The plan 172 00:11:12,720 --> 00:11:15,120 Speaker 1: promises to cover those who had deposits of up to 173 00:11:15,160 --> 00:11:18,640 Speaker 1: fifty thousand you one about seven and a half thousand dollars. 174 00:11:19,280 --> 00:11:22,600 Speaker 1: Of course, this didn't help all those depositors who had 175 00:11:22,800 --> 00:11:27,120 Speaker 1: larger sums with the banks. There were vague promises about 176 00:11:27,160 --> 00:11:29,880 Speaker 1: them being able to reclaim more later, but they would 177 00:11:29,920 --> 00:11:33,280 Speaker 1: have been of little consolation to those whose life savings 178 00:11:33,320 --> 00:11:37,959 Speaker 1: were tied up in institutions they thought were fully credit worthy. 179 00:11:38,480 --> 00:11:40,960 Speaker 1: But the real concern here is not what happened to 180 00:11:41,040 --> 00:11:44,520 Speaker 1: these for rural banks, but whether the fear could spread 181 00:11:44,559 --> 00:11:48,760 Speaker 1: to many other rural banks. Remember that there are close 182 00:11:48,800 --> 00:11:52,000 Speaker 1: to thirty eight hundred of such institutions, and they hold 183 00:11:52,080 --> 00:11:56,160 Speaker 1: a gargantuan amount in deposits. What happens if the stories 184 00:11:56,200 --> 00:11:59,480 Speaker 1: of these depositors who lost their life savings start to 185 00:11:59,520 --> 00:12:03,199 Speaker 1: permeate doubt. What happens if other people in the country 186 00:12:03,240 --> 00:12:06,320 Speaker 1: start to grow edgy about their deposits and therefore decide 187 00:12:06,520 --> 00:12:10,280 Speaker 1: that it's best to just withdraw first and ask questions later. 188 00:12:11,040 --> 00:12:14,120 Speaker 1: The reason why bank runs are so deadly is because 189 00:12:14,240 --> 00:12:17,360 Speaker 1: often it's merely the rumor of a bank run that 190 00:12:17,480 --> 00:12:20,840 Speaker 1: can cause one. People will rush to the bank to withdraw, 191 00:12:21,160 --> 00:12:24,160 Speaker 1: and this will cause the bank to have a liquidity crunch. 192 00:12:24,760 --> 00:12:27,240 Speaker 1: If they don't have the cash on hand, then it 193 00:12:27,280 --> 00:12:31,640 Speaker 1: means that they will have to restrict withdrawals. This creates 194 00:12:31,720 --> 00:12:36,200 Speaker 1: even more panic and so on. There's also no guaranteed 195 00:12:36,240 --> 00:12:40,040 Speaker 1: that the panic will be contained to only the rural banks. 196 00:12:40,080 --> 00:12:43,280 Speaker 1: In this climate of uncertainty, in a country not known 197 00:12:43,360 --> 00:12:48,280 Speaker 1: for transparency, cash is king. The main question now is 198 00:12:48,280 --> 00:12:52,240 Speaker 1: whether the banks in China remain well capitalized enough to 199 00:12:52,320 --> 00:12:58,040 Speaker 1: be able to pay out withdrawal requests. Well, yeah about that. 200 00:12:59,440 --> 00:13:03,160 Speaker 1: You see, China is going through a pretty rough economic 201 00:13:03,200 --> 00:13:06,440 Speaker 1: patch at the moment, and that's not because of rural 202 00:13:06,480 --> 00:13:10,320 Speaker 1: banks which promised high returns. One of the biggest risks 203 00:13:10,400 --> 00:13:15,199 Speaker 1: to the Chinese economy is those over leveraged property developers. Now. 204 00:13:15,240 --> 00:13:18,320 Speaker 1: I talked about this in much greater detail last year 205 00:13:18,360 --> 00:13:23,160 Speaker 1: when I covered the Evergrand situation linked to below, but 206 00:13:23,559 --> 00:13:28,200 Speaker 1: since then things have only gotten worse. Now, because it's 207 00:13:28,200 --> 00:13:30,840 Speaker 1: hard to get a reading of the credit distress within 208 00:13:30,880 --> 00:13:32,920 Speaker 1: the country, it helps to take a look at the 209 00:13:33,000 --> 00:13:37,880 Speaker 1: offshore bond market. As you no doubt know, Evergrand defaulted 210 00:13:37,960 --> 00:13:41,480 Speaker 1: on its dollar bonds earlier this year, and it seems 211 00:13:41,520 --> 00:13:44,440 Speaker 1: as if the trend is only going in one direction. 212 00:13:45,160 --> 00:13:49,640 Speaker 1: So far this year, bond delinquencies have already exceeded twenty 213 00:13:49,720 --> 00:13:53,760 Speaker 1: six billion dollars, and the rot has begun to spread 214 00:13:53,840 --> 00:13:58,400 Speaker 1: to other much larger property developers. Here you can see 215 00:13:58,440 --> 00:14:02,360 Speaker 1: the dollar bond prices some of China's largest developers. These 216 00:14:02,360 --> 00:14:05,559 Speaker 1: include the likes of Country Garden and van Ki, both 217 00:14:05,559 --> 00:14:10,160 Speaker 1: of which have almost double the sales of Evergrand. These 218 00:14:10,280 --> 00:14:14,040 Speaker 1: are tanking, which means that there is renewed skepticism about 219 00:14:14,080 --> 00:14:16,560 Speaker 1: the potential for these developers to be able to pay 220 00:14:16,559 --> 00:14:20,600 Speaker 1: their debts going forward. While the evergrand default could have 221 00:14:20,640 --> 00:14:24,360 Speaker 1: been absorbed, a collapse of these two other developers could 222 00:14:24,400 --> 00:14:28,800 Speaker 1: have cataclysmic results for the economy. And while these are 223 00:14:28,920 --> 00:14:32,160 Speaker 1: offshore bonds, you should also not forget that these developers 224 00:14:32,320 --> 00:14:36,600 Speaker 1: have immense onshore debt as well. The holders of this 225 00:14:36,720 --> 00:14:40,040 Speaker 1: debt are the banks in China that have lent to 226 00:14:40,200 --> 00:14:44,080 Speaker 1: the developers. There are also a number of other businesses 227 00:14:44,120 --> 00:14:48,840 Speaker 1: that hold opaque commercial paper issued by these developers. These 228 00:14:48,840 --> 00:14:53,520 Speaker 1: include not just banks, but suppliers, contractors, and other businesses 229 00:14:53,520 --> 00:14:58,080 Speaker 1: that operate in the construction supply chain. Here's the crazy thing, though, 230 00:14:58,480 --> 00:15:01,680 Speaker 1: Because this commercial paper has been seen as an asset, 231 00:15:02,000 --> 00:15:07,080 Speaker 1: it has also been used as collateral and a quasi currency. 232 00:15:07,240 --> 00:15:10,080 Speaker 1: Banks would give out loans to businesses that held this 233 00:15:10,200 --> 00:15:13,440 Speaker 1: commercial paper on the assumption that it was as good 234 00:15:13,480 --> 00:15:17,080 Speaker 1: as cash. I mean, for a property developer in a 235 00:15:17,120 --> 00:15:21,080 Speaker 1: country with a rock solid real estate sector. Banks were 236 00:15:21,160 --> 00:15:23,800 Speaker 1: more than willing to hold this on their balance sheets. 237 00:15:24,560 --> 00:15:28,240 Speaker 1: The only problem is that this commercial paper is not cash, 238 00:15:28,760 --> 00:15:32,400 Speaker 1: and when people are demanding their deposits back. They don't 239 00:15:32,600 --> 00:15:37,160 Speaker 1: really want to get commercial paper. So banks could find 240 00:15:37,200 --> 00:15:40,480 Speaker 1: themselves in a precarious position where they have a balance 241 00:15:40,480 --> 00:15:44,680 Speaker 1: sheet that's deteriorating by the day and demands from their 242 00:15:44,680 --> 00:15:49,280 Speaker 1: creditors their depositors for their funds back. This is an 243 00:15:49,280 --> 00:15:52,880 Speaker 1: issue which would extend far beyond just the rural banks 244 00:15:53,120 --> 00:15:56,160 Speaker 1: to include the likes of the larger commercial banks in 245 00:15:56,200 --> 00:15:59,560 Speaker 1: the country. But if you think that's where the problems 246 00:15:59,720 --> 00:16:02,320 Speaker 1: end for Chinese banks, then I hate to break it 247 00:16:02,360 --> 00:16:04,920 Speaker 1: to you, but they are exposed not only to the 248 00:16:05,000 --> 00:16:09,120 Speaker 1: developers that built these homes, but also those people who 249 00:16:09,280 --> 00:16:14,200 Speaker 1: bought said homes from the developers. Given that property has 250 00:16:14,240 --> 00:16:16,800 Speaker 1: been seen as one of the best investments over the 251 00:16:16,840 --> 00:16:20,800 Speaker 1: past few years, Chinese citizens have been snapping it up. 252 00:16:21,720 --> 00:16:24,440 Speaker 1: Many were more than happy to put down and deposit 253 00:16:24,520 --> 00:16:28,560 Speaker 1: on an apartment that didn't yet exist. They also had 254 00:16:28,680 --> 00:16:32,480 Speaker 1: no qualms about buying these apartments with debt and taking 255 00:16:32,520 --> 00:16:36,160 Speaker 1: out mortgages. They're thinking was that as long as the 256 00:16:36,200 --> 00:16:39,200 Speaker 1: prices went up and demand was there, they could always 257 00:16:39,200 --> 00:16:42,440 Speaker 1: flip at a profit and pay off the debt. The 258 00:16:42,560 --> 00:16:45,960 Speaker 1: banks had a similar thinking as to the collateral value 259 00:16:46,000 --> 00:16:49,000 Speaker 1: of the homes and were therefore happy to issue mortgages. 260 00:16:49,800 --> 00:16:52,480 Speaker 1: The only problem is that because these property developers have 261 00:16:52,520 --> 00:16:55,440 Speaker 1: been in trouble, there have been substantial delays to some 262 00:16:55,560 --> 00:16:59,680 Speaker 1: of these projects. In some cases, people were delivered half 263 00:16:59,720 --> 00:17:03,760 Speaker 1: built houses, in other cases they had nothing delivered at all. 264 00:17:04,520 --> 00:17:07,400 Speaker 1: Now it also doesn't help that home prices have been 265 00:17:07,480 --> 00:17:11,640 Speaker 1: falling across the board in China, So what you had 266 00:17:11,760 --> 00:17:14,679 Speaker 1: was a situation where people were paying a mortgage for 267 00:17:14,720 --> 00:17:17,760 Speaker 1: a home they didn't have access to and which was 268 00:17:17,800 --> 00:17:22,239 Speaker 1: also falling in value. To protest what many thought was 269 00:17:22,320 --> 00:17:27,399 Speaker 1: an injustice, they also stopped paying their mortgages. Home buyers 270 00:17:27,440 --> 00:17:31,760 Speaker 1: across twenty two cities have refused to meet their payment obligations. 271 00:17:32,680 --> 00:17:35,840 Speaker 1: This is putting a strain on bank balance sheets as 272 00:17:35,880 --> 00:17:38,760 Speaker 1: they don't earn that interest income which they can then 273 00:17:38,840 --> 00:17:42,239 Speaker 1: use to pay out their depositors. It's also not as 274 00:17:42,280 --> 00:17:45,240 Speaker 1: if they can take ownership of the houses because well, 275 00:17:45,520 --> 00:17:49,480 Speaker 1: they haven't even been built. So essentially you have a 276 00:17:49,520 --> 00:17:53,760 Speaker 1: dire situation in which banks are being squeezed in all directions. 277 00:17:54,359 --> 00:17:58,000 Speaker 1: They're exposed to the developers, they are exposed to the 278 00:17:58,040 --> 00:18:01,399 Speaker 1: home buyers, they're exposed to everyone that has taken on 279 00:18:01,640 --> 00:18:07,520 Speaker 1: commercial paper as debt a bleak picture indeed, so it's 280 00:18:07,520 --> 00:18:10,720 Speaker 1: perhaps for this reason that Chinese bank stocks have been 281 00:18:10,760 --> 00:18:14,680 Speaker 1: taking a tumble. China's c s I Banks index has 282 00:18:14,720 --> 00:18:18,480 Speaker 1: fallen to a two year low on these contagion fears. 283 00:18:18,520 --> 00:18:22,000 Speaker 1: But at least they can count on some strong, robust 284 00:18:22,119 --> 00:18:28,560 Speaker 1: economic growth right well. Last week, China reported its advanced 285 00:18:28,680 --> 00:18:32,359 Speaker 1: estimates for Q two GDP growth. This came in at 286 00:18:33,080 --> 00:18:35,480 Speaker 1: zero point four percent, and it was one of the 287 00:18:35,640 --> 00:18:39,399 Speaker 1: slowest since the start of the pandemic. It was also 288 00:18:39,680 --> 00:18:42,920 Speaker 1: way below the four point eight percent recorded in Q one, 289 00:18:43,240 --> 00:18:47,760 Speaker 1: and even below most analysts estimates. Of course, that's if 290 00:18:47,840 --> 00:18:50,440 Speaker 1: you even believe that in a time when the country 291 00:18:50,440 --> 00:18:54,280 Speaker 1: had some of its most restrictive lockdowns in its biggest cities, 292 00:18:54,520 --> 00:18:57,880 Speaker 1: it was somehow able to achieve any growth at all. 293 00:18:58,680 --> 00:19:00,800 Speaker 1: I talked about this in much data detail in my 294 00:19:00,920 --> 00:19:03,399 Speaker 1: video about Chinese GDP, which I will pop in the 295 00:19:03,440 --> 00:19:07,160 Speaker 1: description for you. Now, irrespective of what the true great 296 00:19:07,240 --> 00:19:11,160 Speaker 1: road is, it's still a pretty unprecedented slowdown for the country. 297 00:19:11,440 --> 00:19:13,800 Speaker 1: It also points to the fact that there are broader 298 00:19:13,800 --> 00:19:17,399 Speaker 1: stresses in the country that extend beyond just the property sector. 299 00:19:18,040 --> 00:19:21,439 Speaker 1: Stresses that could further add strains to bank balance sheets. 300 00:19:22,000 --> 00:19:24,840 Speaker 1: Let's just hope they don't have a whole host of 301 00:19:24,920 --> 00:19:29,040 Speaker 1: anxious depositors turning up at their branches demanding their money 302 00:19:29,080 --> 00:19:33,840 Speaker 1: back all at once. M Okay, Time for a few 303 00:19:33,880 --> 00:19:37,040 Speaker 1: closing thoughts on this mess. It's quite clear that China's 304 00:19:37,080 --> 00:19:41,040 Speaker 1: economy is sailing through some stormy seas. Then again, nearly 305 00:19:41,080 --> 00:19:44,440 Speaker 1: all economies are, But the difference is that we now 306 00:19:44,520 --> 00:19:47,960 Speaker 1: know how high the waves are. Given the suppression of 307 00:19:48,000 --> 00:19:51,679 Speaker 1: speech and manipulation of data in China, it's hard to 308 00:19:51,720 --> 00:19:54,840 Speaker 1: tell whether it's economy will be swamped by the waves 309 00:19:54,880 --> 00:19:58,760 Speaker 1: it's trying to navigate. I also wouldn't expect any sort 310 00:19:58,760 --> 00:20:02,560 Speaker 1: of transparency to be forthcoming. In fact, over the next 311 00:20:02,560 --> 00:20:05,399 Speaker 1: couple of months we're likely to see even further crackdowns 312 00:20:05,400 --> 00:20:09,119 Speaker 1: on descent and protests as z Jimping prepares for the 313 00:20:09,200 --> 00:20:13,200 Speaker 1: twentieth Party Congress. Can't have the news of economic turmoil 314 00:20:13,440 --> 00:20:17,640 Speaker 1: spoiling the Big Party, can we. These bank runs are 315 00:20:17,680 --> 00:20:20,879 Speaker 1: just a symptom of a larger issue that plagues China, 316 00:20:21,040 --> 00:20:24,240 Speaker 1: a lack of transparency and an erosion of trust in 317 00:20:24,280 --> 00:20:27,600 Speaker 1: the powers that be. The more the authorities attempt to 318 00:20:27,640 --> 00:20:30,879 Speaker 1: suppress these stories, the more people will begin to worry 319 00:20:30,920 --> 00:20:34,320 Speaker 1: about the safety of their savings. And of course they 320 00:20:34,359 --> 00:20:37,760 Speaker 1: have good reason to worry. That's because their savings have 321 00:20:37,880 --> 00:20:41,959 Speaker 1: been loaned out, rehypothecated, and loaned out again. They may 322 00:20:42,000 --> 00:20:44,520 Speaker 1: be tied up in some developer debt, or perhaps they 323 00:20:44,560 --> 00:20:48,800 Speaker 1: went towards someone's mortgage. The banks are now struggling to 324 00:20:48,880 --> 00:20:52,200 Speaker 1: recoup these funds, and their balance sheets are getting impacted 325 00:20:52,280 --> 00:20:56,439 Speaker 1: in the process. China has a slowdown in economic growth, 326 00:20:56,560 --> 00:20:59,000 Speaker 1: and there is no guarantee that we won't see a 327 00:20:59,080 --> 00:21:03,440 Speaker 1: reversion to some draconian COVID measures, especially in the lead 328 00:21:03,520 --> 00:21:06,880 Speaker 1: up to zse third term. It's going to be interesting 329 00:21:06,920 --> 00:21:10,200 Speaker 1: to see how all this plays out. Either it turns 330 00:21:10,200 --> 00:21:14,359 Speaker 1: out to be an economic tempest of Titanic proportions or 331 00:21:14,560 --> 00:21:17,680 Speaker 1: nothing more than a storm in a teacup. Either way, 332 00:21:17,800 --> 00:21:20,760 Speaker 1: it's something I am going to be keeping a very 333 00:21:20,760 --> 00:21:29,600 Speaker 1: close eye on. When does economic hardship turn into revolution? 334 00:21:30,160 --> 00:21:33,520 Speaker 1: When do people risk it all to overthrow the status quo? 335 00:21:34,440 --> 00:21:37,320 Speaker 1: Tricky questions, but we can get some of our best 336 00:21:37,359 --> 00:21:41,879 Speaker 1: answers yet from what's been happening in Sri Lanka. In 337 00:21:41,960 --> 00:21:44,639 Speaker 1: my video today, I'm going to tell you exactly what's 338 00:21:44,680 --> 00:21:47,960 Speaker 1: taken place so far and how the country got to 339 00:21:48,040 --> 00:21:51,199 Speaker 1: where it is. I'll also go through some of the 340 00:21:51,240 --> 00:21:56,679 Speaker 1: implications for other countries that could be in similarly precarious positions. 341 00:21:57,280 --> 00:22:07,560 Speaker 1: This is a video you can't afford to this. In 342 00:22:07,600 --> 00:22:09,680 Speaker 1: case you've been living under a rock for the past 343 00:22:09,720 --> 00:22:12,600 Speaker 1: couple of months, you'll have seen that Sri Lanka has 344 00:22:12,640 --> 00:22:17,320 Speaker 1: been through a revolution, a revolution involving protests which eventually 345 00:22:17,359 --> 00:22:21,640 Speaker 1: resulted in the presidential palace being stormed and the president 346 00:22:21,760 --> 00:22:26,280 Speaker 1: got a buyer, Rajapaksa fleeing the country. Now we'll get 347 00:22:26,359 --> 00:22:28,800 Speaker 1: to all of that, but before we do, we need 348 00:22:28,800 --> 00:22:32,600 Speaker 1: to take a look at Sri Lanka's recent history. In short, 349 00:22:32,640 --> 00:22:36,119 Speaker 1: Sri Lanka has been ruled by one political family for 350 00:22:36,160 --> 00:22:40,919 Speaker 1: almost twenty years. These are the Raja Pasas, who first 351 00:22:40,960 --> 00:22:44,320 Speaker 1: came to power back in two thousand and four. This 352 00:22:44,400 --> 00:22:47,720 Speaker 1: was when Mahinda Rajapaksa, the elder brother of the now 353 00:22:47,840 --> 00:22:52,199 Speaker 1: ex president, was appointed Prime minister. He was quite the 354 00:22:52,240 --> 00:22:57,000 Speaker 1: populist and projected himself as the people's man. In two 355 00:22:57,040 --> 00:22:59,840 Speaker 1: thousand and five, he was elected president and one of 356 00:23:00,160 --> 00:23:02,720 Speaker 1: primary goals was to put an end to the three 357 00:23:02,800 --> 00:23:07,359 Speaker 1: decade long Shri Lankan civil war. He succeeded to this 358 00:23:07,560 --> 00:23:11,040 Speaker 1: end and eventually crushed the Tamil resistance fighters in two 359 00:23:11,080 --> 00:23:14,440 Speaker 1: thousand and nine. Now, despite what some people may think 360 00:23:14,480 --> 00:23:17,600 Speaker 1: of this, the majority of the Shri Lankan population saw 361 00:23:17,640 --> 00:23:21,119 Speaker 1: it as a victory for stability. And I should also 362 00:23:21,160 --> 00:23:24,000 Speaker 1: add that at about this time, got A Buyer was 363 00:23:24,040 --> 00:23:29,280 Speaker 1: serving as a powerful military strategist and defense official. So 364 00:23:29,520 --> 00:23:31,920 Speaker 1: it was the role that the brothers played in ending 365 00:23:31,920 --> 00:23:34,639 Speaker 1: the civil war that earned them the support of the 366 00:23:34,720 --> 00:23:40,480 Speaker 1: broader majority Sinhalese population. Despite briefly losing power in twenty 367 00:23:40,560 --> 00:23:43,800 Speaker 1: fifteen to the opposition party, the brothers made a comeback 368 00:23:43,920 --> 00:23:48,240 Speaker 1: in that was due to their promise of stability again 369 00:23:48,640 --> 00:23:51,080 Speaker 1: in the wake of the Easter Day bombings, in which 370 00:23:51,119 --> 00:23:53,960 Speaker 1: two d and fifty people were killed, this time as 371 00:23:53,960 --> 00:23:57,800 Speaker 1: a result of Islamic terror. This played well in a 372 00:23:57,840 --> 00:24:00,440 Speaker 1: country scared of Isis and with the of a war 373 00:24:00,680 --> 00:24:04,760 Speaker 1: still freshen its mind, and this time it was got 374 00:24:04,760 --> 00:24:09,119 Speaker 1: a Buyer who eventually became president. He then appointed his brother, 375 00:24:09,359 --> 00:24:13,720 Speaker 1: yes the previous president, as Prime Minister, and he also 376 00:24:13,880 --> 00:24:17,479 Speaker 1: handed key positions to several other members of his family 377 00:24:17,880 --> 00:24:22,479 Speaker 1: never a good idea. That's because with only loyalists and 378 00:24:22,680 --> 00:24:25,600 Speaker 1: yes men in the government, the president was never told 379 00:24:25,640 --> 00:24:28,920 Speaker 1: that some of the ideas he had were just plain stupid, 380 00:24:29,640 --> 00:24:32,399 Speaker 1: and if he was told, then the individual doing the 381 00:24:32,440 --> 00:24:36,720 Speaker 1: telling was sacked. As a result, a lot of mistakes 382 00:24:36,880 --> 00:24:40,199 Speaker 1: were made. One of the earliest of these, even before 383 00:24:40,240 --> 00:24:43,400 Speaker 1: got a Buyer became president, was the reliance on Chinese 384 00:24:43,440 --> 00:24:48,520 Speaker 1: debt to finance wasteful expenditure. These short term loans came 385 00:24:48,600 --> 00:24:51,240 Speaker 1: with onerous terms and were used to build things like 386 00:24:51,320 --> 00:24:54,400 Speaker 1: an airport no one flies to and a cricket stadium 387 00:24:54,480 --> 00:24:57,639 Speaker 1: no one uses to a cricket loving brit That second 388 00:24:57,640 --> 00:25:01,560 Speaker 1: one really is beyond the pale anyways. Total estimates for 389 00:25:01,560 --> 00:25:05,840 Speaker 1: the outstanding Chinese loans are between five and ten billion dollars. 390 00:25:06,320 --> 00:25:09,000 Speaker 1: This is on top of the other fifty one billion 391 00:25:09,040 --> 00:25:13,680 Speaker 1: dollars owed to other nations and fun fact, in twenty eighteen, 392 00:25:13,760 --> 00:25:16,720 Speaker 1: Sri Lanka defaulted on one of its loans to China 393 00:25:17,080 --> 00:25:19,679 Speaker 1: and as a result had to sign over a strategic 394 00:25:19,760 --> 00:25:22,719 Speaker 1: port in the south of the country to China on 395 00:25:22,760 --> 00:25:26,080 Speaker 1: a ninety nine year lease. Now part of the way 396 00:25:26,080 --> 00:25:28,240 Speaker 1: in which Sri Lanka was able to service its debts 397 00:25:28,280 --> 00:25:30,760 Speaker 1: and maintain a standard of living for its people was 398 00:25:30,840 --> 00:25:35,560 Speaker 1: through one of its main sources of foreign income tourism, 399 00:25:35,600 --> 00:25:38,159 Speaker 1: and while the Easter Day bombings were a blow to 400 00:25:38,280 --> 00:25:41,880 Speaker 1: the tourism sector, it was the pandemic that really reduced 401 00:25:42,000 --> 00:25:46,400 Speaker 1: that particular income stream to a trickle. With the collapse 402 00:25:46,560 --> 00:25:49,639 Speaker 1: of the tourism industry in Sri Lanka, the government was 403 00:25:49,720 --> 00:25:54,040 Speaker 1: left facing a balance of payments crisis. Essentially, it was 404 00:25:54,119 --> 00:25:57,720 Speaker 1: importing way more than it was exporting, and this meant 405 00:25:57,760 --> 00:26:00,760 Speaker 1: that it had to restrict some of those ports or 406 00:26:01,080 --> 00:26:04,760 Speaker 1: risk not being able to pay for them. One imported 407 00:26:04,840 --> 00:26:07,919 Speaker 1: product upon which the country was most reliant was, of 408 00:26:07,960 --> 00:26:12,960 Speaker 1: course fuel. Sri Lanka imported nearly all of its fuel, 409 00:26:13,080 --> 00:26:17,080 Speaker 1: and when funds started running dry, so too did the pumps. 410 00:26:18,080 --> 00:26:22,600 Speaker 1: Fuel is unsurprisingly essential in Sri Lannka, not only fulfilling 411 00:26:22,640 --> 00:26:26,720 Speaker 1: cars but for generating power. Fuel cuts have resulted in 412 00:26:26,920 --> 00:26:31,399 Speaker 1: months of rolling blackouts across the country. Even those able 413 00:26:31,400 --> 00:26:34,920 Speaker 1: to afford the now expensive fuel had to spend hours 414 00:26:35,040 --> 00:26:39,640 Speaker 1: or in some cases days, waiting in line. The government 415 00:26:39,800 --> 00:26:43,160 Speaker 1: was forced to impose rational though even this has not 416 00:26:43,320 --> 00:26:47,399 Speaker 1: been enough to prevent shortages. While many were hopeful that 417 00:26:47,560 --> 00:26:51,159 Speaker 1: more fuel would eventually arrive, the government's energy minister was 418 00:26:51,240 --> 00:26:54,359 Speaker 1: forced to admit that there weren't the funds there to 419 00:26:54,440 --> 00:26:58,840 Speaker 1: pay for it. The shipments would cost five eighty seven 420 00:26:58,960 --> 00:27:02,959 Speaker 1: million dollars the government only had one hundred and twenty 421 00:27:03,000 --> 00:27:06,359 Speaker 1: five million dollars in the bank. It's also in debt 422 00:27:06,400 --> 00:27:09,680 Speaker 1: to food suppliers to the tune of around eight hundred 423 00:27:09,800 --> 00:27:13,399 Speaker 1: million dollars. It's not only fuel, though, as there is 424 00:27:13,480 --> 00:27:17,560 Speaker 1: also a shortage of cooking gas. This is essential for 425 00:27:17,680 --> 00:27:19,800 Speaker 1: a lot of Shri Lankans who use it to cook 426 00:27:19,800 --> 00:27:22,080 Speaker 1: in their homes and have had to resort to open 427 00:27:22,160 --> 00:27:26,119 Speaker 1: fires to prepare their food. Of course, given that fuel 428 00:27:26,320 --> 00:27:28,520 Speaker 1: is one of the biggest components of the cost of 429 00:27:28,640 --> 00:27:32,320 Speaker 1: many goods and services, this has contributed to some pretty 430 00:27:32,359 --> 00:27:36,000 Speaker 1: sky high inflation. In June of this year, the government 431 00:27:36,040 --> 00:27:39,520 Speaker 1: reported an inflation rate of fifty four point six percent. 432 00:27:40,359 --> 00:27:43,080 Speaker 1: This was compared to twenty nine point eight percent that 433 00:27:43,160 --> 00:27:46,400 Speaker 1: was reported in May, and that's if you even believe 434 00:27:46,520 --> 00:27:50,200 Speaker 1: all of these official inflation figures that governments put out. 435 00:27:50,960 --> 00:27:53,639 Speaker 1: Of Course, the attempts to solve the country's balance of 436 00:27:53,640 --> 00:27:57,239 Speaker 1: payment problems were all in vain, and that's because not 437 00:27:57,359 --> 00:27:59,920 Speaker 1: only did the country not have enough dollars to imp 438 00:28:00,000 --> 00:28:03,520 Speaker 1: caught vital goods, it also didn't have enough in reserve 439 00:28:03,720 --> 00:28:07,679 Speaker 1: to pay the interest on its outstanding sovereign debt. The 440 00:28:07,760 --> 00:28:11,879 Speaker 1: result was the first sovereign debt default in Sri Lanka's history, 441 00:28:12,240 --> 00:28:15,760 Speaker 1: something that completely tanked its credit rating and locked it 442 00:28:15,800 --> 00:28:20,640 Speaker 1: out of any further financing. So it's an altogether torrid 443 00:28:20,720 --> 00:28:23,960 Speaker 1: time for the people of Sri Lanka. However, was it 444 00:28:24,040 --> 00:28:27,119 Speaker 1: this fuel crisis that led to the protests? Was it 445 00:28:27,240 --> 00:28:30,360 Speaker 1: the balance of payments crisis that caused people to take 446 00:28:30,400 --> 00:28:34,159 Speaker 1: to the streets. Well, I don't think so, at least 447 00:28:34,400 --> 00:28:39,480 Speaker 1: not directly. The biggest catalyst has to be food shortages. 448 00:28:40,160 --> 00:28:43,360 Speaker 1: When the choice is between arrest or potential death at 449 00:28:43,360 --> 00:28:47,040 Speaker 1: a protest, it's still a better outcome than certain death 450 00:28:47,200 --> 00:28:51,680 Speaker 1: from starvation. In Sri Lanka, people are struggling to find 451 00:28:51,800 --> 00:28:55,360 Speaker 1: their next meal and many are going hungary. Now this 452 00:28:55,400 --> 00:28:59,080 Speaker 1: seems counterintuitive for a country that seems to have abundant 453 00:28:59,120 --> 00:29:02,440 Speaker 1: arable land and is a large producer of staples such 454 00:29:02,520 --> 00:29:07,080 Speaker 1: as rice and vegetables. Well, these shortages are all thanks 455 00:29:07,120 --> 00:29:11,520 Speaker 1: to some pretty ill advised government environmental policy, the seeds 456 00:29:11,520 --> 00:29:14,960 Speaker 1: of which were sewn over a year ago. Allow me 457 00:29:15,200 --> 00:29:19,520 Speaker 1: to explain. In April last year, the Sri Lankan government 458 00:29:19,560 --> 00:29:24,680 Speaker 1: implemented a ban on synthetic fertilizers. The rationale for this 459 00:29:24,720 --> 00:29:27,880 Speaker 1: ban was that these fertilizers could be harmful and that 460 00:29:27,960 --> 00:29:32,560 Speaker 1: farmers should consider organic alternatives. I should also add that 461 00:29:32,600 --> 00:29:36,320 Speaker 1: the movement to ban these fertilizers is worldwide, and one 462 00:29:36,360 --> 00:29:39,320 Speaker 1: can only assume that the Sri Lankan government assumed it 463 00:29:39,360 --> 00:29:43,720 Speaker 1: to be a sound environmental policy. Beyond that lay the 464 00:29:43,840 --> 00:29:46,480 Speaker 1: hope that the ban would help to lessen the country's 465 00:29:46,520 --> 00:29:50,640 Speaker 1: balance of payments problem by eliminating the four hundred million 466 00:29:50,680 --> 00:29:55,400 Speaker 1: dollars that was being spent annually on these fertilizers. Remember 467 00:29:55,440 --> 00:29:57,520 Speaker 1: this number, as will come back to it in a bit. 468 00:29:58,400 --> 00:30:02,800 Speaker 1: Either way, Nearly every farmer and industry expert told the 469 00:30:02,840 --> 00:30:06,640 Speaker 1: government that this was a bad idea. If they were 470 00:30:06,680 --> 00:30:10,880 Speaker 1: indeed looking to eventually transition to organic fertilizer, then there 471 00:30:10,880 --> 00:30:15,400 Speaker 1: should be a process of phasing in. However, the government's 472 00:30:15,440 --> 00:30:19,600 Speaker 1: ban came into effect overnight and without any consideration of 473 00:30:19,600 --> 00:30:22,840 Speaker 1: the country's food supply. In June of last year, a 474 00:30:22,880 --> 00:30:26,720 Speaker 1: group of thirty food security and farming experts informed the 475 00:30:26,760 --> 00:30:30,280 Speaker 1: government of the substantial loss in harvest that could be 476 00:30:30,360 --> 00:30:34,320 Speaker 1: seen should the band not be reversed. Here you can 477 00:30:34,320 --> 00:30:36,880 Speaker 1: see a table that they drew up with the estimates 478 00:30:36,880 --> 00:30:39,840 Speaker 1: of how much the harvest could fall as a result 479 00:30:39,920 --> 00:30:43,560 Speaker 1: of this ban. It's safe to say that these concerns 480 00:30:43,840 --> 00:30:49,280 Speaker 1: were ignored. In fact, they were even suppressed. That's because 481 00:30:49,320 --> 00:30:52,560 Speaker 1: a minister who criticized the policy earlier this year was 482 00:30:52,680 --> 00:30:57,080 Speaker 1: dismissed from his post with immediate effect. Of course, you 483 00:30:57,120 --> 00:31:00,440 Speaker 1: can see how all this played out. The band had 484 00:31:00,520 --> 00:31:03,200 Speaker 1: exactly the effect that the critics had predicted, and in 485 00:31:03,240 --> 00:31:07,600 Speaker 1: some cases it was even worse. For example, last year, 486 00:31:07,680 --> 00:31:10,880 Speaker 1: the output of grain in the country fell by forty 487 00:31:11,000 --> 00:31:15,680 Speaker 1: three percent. That's right, it almost halved. This meant that 488 00:31:15,720 --> 00:31:18,840 Speaker 1: those Sri Lankans who ate rice now had to import 489 00:31:18,880 --> 00:31:22,560 Speaker 1: that rice to make up for the shortfall. Remember that 490 00:31:22,680 --> 00:31:25,160 Speaker 1: four hundred million dollars that the government wanted to save 491 00:31:25,240 --> 00:31:27,880 Speaker 1: on the balance of payments. Well, to make up for 492 00:31:27,920 --> 00:31:31,120 Speaker 1: the shortfall in rice, it had to import four hundred 493 00:31:31,160 --> 00:31:34,520 Speaker 1: and fifty million dollars worth of it. Talk about shooting 494 00:31:34,520 --> 00:31:38,160 Speaker 1: yourself in the foot. But if that was shooting themselves 495 00:31:38,200 --> 00:31:41,080 Speaker 1: in the foot, then the impact on tea exports was 496 00:31:41,200 --> 00:31:44,720 Speaker 1: blowing a leg off. That's because tea was one of 497 00:31:44,760 --> 00:31:49,800 Speaker 1: the country's most stable exports and foreign currency earners. Exports 498 00:31:49,800 --> 00:31:53,560 Speaker 1: totaled one point three billion dollars and Sri Lanka was 499 00:31:53,600 --> 00:31:57,600 Speaker 1: responsible for about five percent of all global tea production. 500 00:31:58,360 --> 00:32:00,840 Speaker 1: It turns out that the tea far us were also 501 00:32:01,040 --> 00:32:05,120 Speaker 1: quite dependent on fertilizer. Who would have thought it so. 502 00:32:05,480 --> 00:32:09,280 Speaker 1: Tea production has fallen by an estimated eighteen percent in 503 00:32:09,320 --> 00:32:12,280 Speaker 1: Sri Lannka, down to its lowest level in over twenty 504 00:32:12,320 --> 00:32:15,840 Speaker 1: three years now. The impact of the ban on synthetic 505 00:32:15,840 --> 00:32:19,840 Speaker 1: fertilizer has also not been uniform across the country. Some 506 00:32:19,920 --> 00:32:24,600 Speaker 1: places have been hit harder than others. For example, in Rajanganaia, 507 00:32:24,720 --> 00:32:27,640 Speaker 1: where most farmers operate only a small plot of land, 508 00:32:28,080 --> 00:32:31,160 Speaker 1: many told The Guardian that they had seen a reduction 509 00:32:31,320 --> 00:32:35,600 Speaker 1: of fifty to sixty percent of their harvest. According to 510 00:32:35,640 --> 00:32:39,480 Speaker 1: farmer Vimukhti da Silva Quote. Before the band this was 511 00:32:39,520 --> 00:32:42,120 Speaker 1: one of the biggest markets in the country, with tons 512 00:32:42,160 --> 00:32:45,920 Speaker 1: and tons of rice and vegetables, but after the ban, 513 00:32:46,120 --> 00:32:49,600 Speaker 1: it became almost zero. If you talk to the rice mills, 514 00:32:49,760 --> 00:32:54,000 Speaker 1: they don't have any stock. Because people's harvest dropped so much, 515 00:32:54,600 --> 00:32:57,760 Speaker 1: the income of this whole community has dropped to an 516 00:32:57,760 --> 00:33:02,360 Speaker 1: extremely low level. Now, this of course points to another issue. 517 00:33:02,960 --> 00:33:05,640 Speaker 1: Not only has the ban impacted on the food supply 518 00:33:05,760 --> 00:33:08,640 Speaker 1: of the whole country, but it's also hit the incomes 519 00:33:08,680 --> 00:33:12,800 Speaker 1: of hundreds of thousands of small farmers, those who were 520 00:33:12,920 --> 00:33:16,600 Speaker 1: least likely to be able to switch to organic fertilizers 521 00:33:16,640 --> 00:33:20,400 Speaker 1: even if they wanted to. These farmers have now decided that, 522 00:33:20,560 --> 00:33:23,360 Speaker 1: given that they can't get much from their fields, they're 523 00:33:23,400 --> 00:33:27,240 Speaker 1: going to abandon them entirely. By some estimates, this could 524 00:33:27,320 --> 00:33:32,000 Speaker 1: result in a further fifty fall in rice production this year. 525 00:33:32,960 --> 00:33:36,400 Speaker 1: This entirely predictable fall in the production of food in 526 00:33:36,440 --> 00:33:39,760 Speaker 1: Sri Lanka is perhaps the reason why the government decided 527 00:33:39,880 --> 00:33:43,760 Speaker 1: to reverse the fertilizer ban. In an interview with Bloomberg 528 00:33:43,800 --> 00:33:46,880 Speaker 1: News earlier this year, the president even admitted that it 529 00:33:46,960 --> 00:33:50,880 Speaker 1: was rolled out too quickly. Of course, that did little 530 00:33:50,880 --> 00:33:54,840 Speaker 1: to quell public anger. The food and fuel crisis tore 531 00:33:54,920 --> 00:33:59,600 Speaker 1: open old wounds, and the protests intensified. They even breached 532 00:33:59,680 --> 00:34:03,680 Speaker 1: the residential palace which led to dramatic scenes such as this, 533 00:34:04,600 --> 00:34:08,680 Speaker 1: President Rajapaksa fled the country, first flying to the Maldives 534 00:34:08,719 --> 00:34:12,600 Speaker 1: and then on to Singapore. He resigned while in exile, 535 00:34:12,920 --> 00:34:16,759 Speaker 1: emailing his resignation to the country's parliament. We can be 536 00:34:16,800 --> 00:34:19,080 Speaker 1: pretty sure that he, as well as the likes of 537 00:34:19,080 --> 00:34:22,359 Speaker 1: Ashraf Ghani who fled Afghanistan, are going to be living 538 00:34:22,360 --> 00:34:25,319 Speaker 1: the high life while poverty and strife remain in the 539 00:34:25,360 --> 00:34:29,840 Speaker 1: countries they abandoned. That aside, the new president has just 540 00:34:29,960 --> 00:34:33,320 Speaker 1: been elected and he is well the ex prime minister. 541 00:34:34,360 --> 00:34:37,200 Speaker 1: This was not something that many people wanted to see 542 00:34:37,239 --> 00:34:40,240 Speaker 1: and it further adds to the frustration at a status 543 00:34:40,320 --> 00:34:43,840 Speaker 1: quote that appears to be entrenched in many governments around 544 00:34:43,880 --> 00:34:48,000 Speaker 1: the world, and speaking of the current real ancon prime minister. 545 00:34:48,360 --> 00:34:50,759 Speaker 1: Something else I found interesting is that he wrote a 546 00:34:50,800 --> 00:34:54,160 Speaker 1: blog post on the World Economic Forum's website back in 547 00:34:54,200 --> 00:34:58,560 Speaker 1: August of quote this is how I will make my 548 00:34:58,640 --> 00:35:04,800 Speaker 1: country rich to d that, as they say, hasn't aged well. 549 00:35:05,640 --> 00:35:09,000 Speaker 1: Fantasy predictions aside, the new president is going to struggle 550 00:35:09,080 --> 00:35:13,440 Speaker 1: to regain control and restore a semblance of normality. Firstly, 551 00:35:13,560 --> 00:35:16,120 Speaker 1: he predicts that the food crisis is likely to last 552 00:35:16,239 --> 00:35:19,440 Speaker 1: well into three and even then I think that's an 553 00:35:19,480 --> 00:35:23,920 Speaker 1: optimistic timeline. The government also has to sort out its finances, 554 00:35:24,000 --> 00:35:26,160 Speaker 1: and it seems that here it is going to have 555 00:35:26,280 --> 00:35:29,560 Speaker 1: to sup with the devil. That's because Sri Lanka is 556 00:35:29,600 --> 00:35:32,920 Speaker 1: trying to secure a bailout from the International Monetary Fund 557 00:35:33,320 --> 00:35:35,759 Speaker 1: or i m F. If you've never heard of the 558 00:35:35,760 --> 00:35:38,000 Speaker 1: i m F and what it does, then my video 559 00:35:38,040 --> 00:35:40,400 Speaker 1: on the topic is well worth watching. That will be 560 00:35:40,440 --> 00:35:43,280 Speaker 1: in the description. Now. The i m F is actually 561 00:35:43,360 --> 00:35:45,799 Speaker 1: quite busy at the moment, as it's also engaged in 562 00:35:45,840 --> 00:35:50,400 Speaker 1: negotiations with Pakistan over another debt deal. Hey, loan Shark's 563 00:35:50,440 --> 00:35:54,600 Speaker 1: got a loan shark right any who. Back in June, 564 00:35:54,760 --> 00:35:57,480 Speaker 1: the i m F was in Colombo for talks with 565 00:35:57,640 --> 00:36:02,320 Speaker 1: Sri Lanka's government. The delegation left without a deal being sealed. 566 00:36:03,239 --> 00:36:05,640 Speaker 1: That's because there are a number of things that need 567 00:36:05,680 --> 00:36:08,560 Speaker 1: to be agreed by the government before a bailout can 568 00:36:08,600 --> 00:36:11,839 Speaker 1: be given. For one, there's the question of whether Sri 569 00:36:11,880 --> 00:36:15,560 Speaker 1: Lanka can actually pay the funds back, and if so, 570 00:36:16,000 --> 00:36:19,319 Speaker 1: will it implement the reforms that the i m F stipulates. 571 00:36:20,320 --> 00:36:23,319 Speaker 1: Those who have had to live under I MF reforms 572 00:36:23,360 --> 00:36:26,080 Speaker 1: in the past, will know exactly what these could be, 573 00:36:26,120 --> 00:36:30,480 Speaker 1: like specified limits on fiscal deficits and surplus, which could 574 00:36:30,640 --> 00:36:35,000 Speaker 1: further damage economic growth. There's also an understanding that the 575 00:36:35,040 --> 00:36:38,759 Speaker 1: country needs to work with global bond holders and bilateral 576 00:36:38,800 --> 00:36:43,880 Speaker 1: creditors to whittle down that existing debt. And remember who 577 00:36:44,080 --> 00:36:50,680 Speaker 1: is Sri Lanka's largest creditor, yep, China. While official statistics 578 00:36:50,680 --> 00:36:54,000 Speaker 1: show that China holds about ten of Sri Lanka's debt, 579 00:36:54,400 --> 00:36:58,680 Speaker 1: many claim that the number is actually closer to I'll 580 00:36:58,719 --> 00:37:01,240 Speaker 1: link to this paper below, which gives a more accurate 581 00:37:01,280 --> 00:37:05,040 Speaker 1: picture of Chinese lending in the country. What this basically 582 00:37:05,040 --> 00:37:07,759 Speaker 1: means is that Sri Lanka won't be able to get 583 00:37:07,760 --> 00:37:12,239 Speaker 1: out of its current crisis without China. China needs to 584 00:37:12,280 --> 00:37:15,600 Speaker 1: agree to the debt restructuring plan, which is not its 585 00:37:15,680 --> 00:37:21,160 Speaker 1: usual path of conquest. It prefers infrastructure as collateral, and 586 00:37:21,200 --> 00:37:24,160 Speaker 1: it's not like Sri Lanka hasn't tried. According to what 587 00:37:24,280 --> 00:37:26,920 Speaker 1: the ex president said in June, it couldn't tap a 588 00:37:27,000 --> 00:37:30,040 Speaker 1: one point five billion dollar credit line from the Chinese 589 00:37:30,280 --> 00:37:32,680 Speaker 1: and wasn't able to take out a one billion dollar 590 00:37:32,640 --> 00:37:37,279 Speaker 1: alone any who. According to the new president, negotiations with 591 00:37:37,360 --> 00:37:41,040 Speaker 1: the I m F are quote nearing conclusion, and discussions 592 00:37:41,040 --> 00:37:45,400 Speaker 1: with donor countries are also progressing. Let's hope for the 593 00:37:45,440 --> 00:37:48,080 Speaker 1: sake of the Sri Lankan people that they're able to 594 00:37:48,120 --> 00:37:55,839 Speaker 1: come to some sort of resolution. Okay, so there are 595 00:37:55,880 --> 00:37:58,399 Speaker 1: many view out there who are perhaps thinking, what does 596 00:37:58,400 --> 00:38:01,520 Speaker 1: this have to do with me? Well, that's because today 597 00:38:01,600 --> 00:38:04,320 Speaker 1: it may be a problem for Sri Lankan's but tomorrow 598 00:38:04,680 --> 00:38:08,280 Speaker 1: it could be a problem for you as well. Firstly, 599 00:38:08,400 --> 00:38:10,960 Speaker 1: there are a lot of countries that are in similarly 600 00:38:11,040 --> 00:38:15,839 Speaker 1: precarious positions to Sri Lanka. Developing countries that mismanage their 601 00:38:15,880 --> 00:38:20,719 Speaker 1: finances and were wrecked by the pandemic restrictions, Countries that 602 00:38:20,920 --> 00:38:25,319 Speaker 1: also have had food shortages and volatile politics. I just 603 00:38:25,400 --> 00:38:28,080 Speaker 1: mentioned that Pakistan is getting a loan from the I 604 00:38:28,280 --> 00:38:30,879 Speaker 1: m F, but there are also countries in the Middle 605 00:38:30,880 --> 00:38:34,799 Speaker 1: East and Africa that are struggling, to countries that are 606 00:38:34,920 --> 00:38:39,840 Speaker 1: historically unstable and prone to unrest. May I remind you 607 00:38:39,960 --> 00:38:42,560 Speaker 1: that the Arab Spring which kicked off in Egypt in 608 00:38:42,560 --> 00:38:46,560 Speaker 1: twenty eleven was in part caused by a shortage of bread. 609 00:38:47,520 --> 00:38:51,759 Speaker 1: Lebanon is going through unprecedented inflation and economic strife. And 610 00:38:52,040 --> 00:38:55,960 Speaker 1: like Egypt, it's heavily dependent on wheat coming from Ukraine 611 00:38:56,360 --> 00:38:59,560 Speaker 1: and Russia. As you will no doubt know, the war 612 00:38:59,640 --> 00:39:03,120 Speaker 1: in New Crane has left global wheat exports in dire straits. 613 00:39:03,400 --> 00:39:06,759 Speaker 1: More about that in the description. The point is, when 614 00:39:06,880 --> 00:39:10,760 Speaker 1: you have revolution and instability in these regions, it's hard 615 00:39:10,800 --> 00:39:14,279 Speaker 1: to contain. People will leave their countries in search of 616 00:39:14,320 --> 00:39:18,960 Speaker 1: employment and better prospects elsewhere. This leads to mass migration, 617 00:39:19,000 --> 00:39:21,919 Speaker 1: which could further add to strife in other countries where 618 00:39:22,040 --> 00:39:26,400 Speaker 1: resources are already stretched. Let's not forget the summer of 619 00:39:26,440 --> 00:39:30,800 Speaker 1: twenty fifteen in Europe. And speaking of Europe, the global 620 00:39:30,840 --> 00:39:34,440 Speaker 1: food insecurity question is no longer just an abstract concept 621 00:39:34,560 --> 00:39:38,600 Speaker 1: for the West. There are legitimate concerns in developed countries 622 00:39:38,640 --> 00:39:42,560 Speaker 1: that they could soon be facing shortages. And if there's 623 00:39:42,680 --> 00:39:45,000 Speaker 1: one thing that we've learned from Sri Lanka, it's the 624 00:39:45,080 --> 00:39:49,600 Speaker 1: governments that try to implement idealistic environmental policies often do 625 00:39:49,719 --> 00:39:54,920 Speaker 1: so without consultation with those who said policies impact. This 626 00:39:55,000 --> 00:39:57,080 Speaker 1: is something that appears to be playing out in the 627 00:39:57,120 --> 00:40:00,960 Speaker 1: Netherlands with the recent farmer protests. In this case, the 628 00:40:01,000 --> 00:40:04,200 Speaker 1: government was trying to slash emissions of nitrogen oxide and 629 00:40:04,239 --> 00:40:09,040 Speaker 1: ammonia by capping livestock farming. Of course, what happens if 630 00:40:09,040 --> 00:40:12,200 Speaker 1: they get their wish and farmers reduce cattle numbers at 631 00:40:12,200 --> 00:40:15,919 Speaker 1: the expense of food security? When do the protests start 632 00:40:15,960 --> 00:40:20,040 Speaker 1: to involve more people than just farmers. Will a lack 633 00:40:20,080 --> 00:40:25,200 Speaker 1: of food eventually lead to political revolution? Thankfully, though, unlike 634 00:40:25,200 --> 00:40:28,800 Speaker 1: in Sri Lanka, Europe isn't facing a large scale energy 635 00:40:28,840 --> 00:40:32,880 Speaker 1: crisis right now. I don't mean to pick on Europe, 636 00:40:32,880 --> 00:40:37,320 Speaker 1: as it's clear that there are many regions facing economic challenges. Therefore, 637 00:40:37,400 --> 00:40:40,040 Speaker 1: it's important to study the collapse of countries like Sri 638 00:40:40,120 --> 00:40:43,319 Speaker 1: Lanka because it can be incredibly instructive as to how 639 00:40:43,360 --> 00:40:47,480 Speaker 1: we avoid such disasters happening closer to home. I hope 640 00:40:47,520 --> 00:40:50,960 Speaker 1: that this video was able to shed some light on that. 641 00:40:52,440 --> 00:40:55,360 Speaker 1: Thank you so much for listening to the coin Bureau podcast. 642 00:40:55,400 --> 00:40:58,000 Speaker 1: If you'd like to learn more about cryptocurrency, you can 643 00:40:58,080 --> 00:41:01,560 Speaker 1: visit our YouTube channel at tube dot com forward slash 644 00:41:01,560 --> 00:41:04,160 Speaker 1: coin Bureau. You can also go to coin bureau dot 645 00:41:04,239 --> 00:41:07,360 Speaker 1: com for loads more information about all things crypto. You 646 00:41:07,360 --> 00:41:09,840 Speaker 1: can follow me on Twitter at coin bureau or one 647 00:41:09,920 --> 00:41:13,279 Speaker 1: word and I'm also active on TikTok and Instagram as well.