China is on the verge of a catastrophic economic meltdown which will have implications for the entire world, a UK-based banking expert has claimed.
And Bob Lyddon believes the policies of Labour Prime Minister Sir Keir Starmer and his Chancellor, Rachel Reeves, are exacerbating the already significant risk of financial “contagion”.
Mr Lyddon was commenting after experts warned China – led by President Xi Jinping – was facing a hazardous deflationary spiral with implications far beyond its borders, with one warning: “This is the biggest story in the world right now.”
Developer Evergrande went into liquidation last year with debts of more than £230billion, raising the spectre of contagion throughout the Chinese property and banking sector.
Meanwhile, Chinese share prices have fallen by double digits for three years in a row.
Mr Lyddon, founder of Lyddon Consulting Services, told Express.co.uk: “Just when we thought the economic data coming out of China could not get any worse, we are informed that there are signs of consumer price deflation, to go along with the deflating prices of commercial and residential property that have been underway for some time.”
The property crisis engulfing both Evergrande and Country Garden, another huge developer, had created loan losses for both HSBC and Standard Chartered Bank, and their respective China/Hong Kong subsidiaries and affiliates, HSBC’s Hang Seng Bank and Bank of Communications, and Standard Chartered’s China Bohai Bank, Mr Lyddon pointed out.
He continued: “At least every year – and on occasions every quarter – the senior management of these banks contend that the worst is over. HSBC stated this on October 23, 2023 and again on July 31, 2024.
“Instead of accepting these emollient bromides, it may be time to recognise that the economic bubble of the last decade is starting to pop all around the world, and that China – 20 of of the global economy – is just running ahead of the rest of us.
“German manufacturing admits it is in trouble. France has problems with its public finances and its politics. The USA has had weak jobs figures.”
None of which bodes well for Beijing if it saw its salvation as being exports to these nations, Mr Lyddon pointed out.
He added: “The customary solution to weak demand in a target country, for a seller, is to drop the price until the goods or services become irresistible to the buyer.
“That deprives domestic actors of their market and raises calls for protectionism or subsidies.
“The latter reduces international free trade – the bedrock of global prosperity – whilst the latter increase government debt which, in many countries, needs to be reduced rather than raised.”
The UK’s risk was heightened by high levels of debt and taxes, not to mention Labour’s social engineering and wealth redistribution agenda”, Mr Lyddon suggested.
He stressed: “Not to mention the Net Zero agenda, the closing of North Sea oil and gas, and the above-inflation pay rises (not matched with productivity increases) for Labour’s supporters club.
“The general economy will not benefit from any of that and the property market in particular looks over-valued on a number of measures.”
A spike in online shopping and work-from-home policies had already hit the High Street and the demand for office and commercial property, Mr Lyddon cautioned.
He said: “How long before the cold wind starts to hit UK residential property, which has become the bellwether for the nation’s economic well-being? The attacks – permitted or even encouraged by Tory tax policy – on second homes, buy-to-let and holiday rentals are already causing price falls in certain areas as owners sell out.
“Labour’s trailed increases in Capital Gains Tax and Inheritance Tax will come on top of that, adding fuel to the fire, at the same time as disposable incomes come under pressure from other tax increases, ongoing inflation, and higher mortgage payments.
“China really does seem to be teetering on the edge of an economic abyss but we should not laugh too loudly: there is an abyss waiting somewhere for the UK, and Labour have set us on a course for it.”
There was a clear risk of contagion, Mr Lyddon emphasised, not just as a result of what was happening to HSBC and Standard Chartered but also as a result of “getting to be a dumping ground for Chinese goods and services and being dragged into a severe global economic downturn”.