Li Ka-shing, 85, is a Hong Kong business magnate, investor, and philanthropist. According to the Bloomberg Billionaires Index, as of October 7, 2013, Li is the richest person in Asia, with a net worth of $30 billion, much of it from shrewd property investment.
Born in southern China in 1928, due to his father’s death, Li was forced to leave school before the age of 15 and found a job in a plastics trading company where he labored 16 hours a day. By 1950 he started his own plastics manufacturing company, Cheung Kong, which developed into a leading real estate investment company in Hong Kong that was listed on the Hong Kong Stock Exchange in 1972.
Given Li’s business acumen, it is noteworthy that according to Simon Black of Sovereign Man, April 16, 2014, Li Ka-Shing is dumping all his property investments in China.
Li had been investing in mainland China back in the early 1990s, before it became the trendy thing to do. Since August of last year, however, he’s divested billions of dollars worth of his Chinese holdings.
The latest is the $928 million sale of the Pacific Place shopping center in Beijing, which was inked just days ago. With this sale, Li will no longer have any major property investments in mainland China.
This isn’t a person who became wealthy by being flippant and scared. So what does he see that nobody else seems to be paying much attention to?
Answer: China’s credit crunch.
After years of unprecedented monetary expansion that has put the economy in a precarious state, the Chinese government has been desperately trying to rein in credit growth.
China’s shadow banking system alone is now worth 84% of GDP according to an estimate by JP Morgan. The IMF pegs total private credit at 230% of GDP, jumping by 100% in the last few years.
Note: Former U.S. Federal Reserve chair Ben Bernanke defines “shadow banking system” as “a diverse set of institutions and markets that, collectively, carry out traditional banking functions–but do so outside, or in ways only loosely linked to, the traditional system of regulated depository institutions.” In other words, shadow banking system refers to UNREGULATED banking institutions. Shadow banking was a primary factor in the U.S. subprime mortgage crisis of 2007-2008 and global recession that followed.
Historically, credit growth rates of China’s proportions have nearly always been followed by severe financial crises. So Chinese leaders are doing their best to engineer a soft landing. If they fail, the spillover could become pandemic, with implications for the entire world.
China could put the entire global financial system on its back just by dumping a portion of its U.S. Treasuries in order to defend the yuan.
Now, you’d think that a major credit crunch with far-reaching consequences in the world’s second largest economy, its largest manufacturer, and its largest holder of US dollar reserves, would be constant front-page news.
But it’s not.