Extraordinary Genius
Chapter 900 – Thailand’s economic situation
“We should wait first, and it’s not time for us to enter yet.” Fu Rongqi replied.
“Why?” Fu Guangzheng was puzzled.
“It’s because the Thai government still has not entered the picture. When the Thai government intervenes, it will be a tough fight. A country’s government will have ways to stabilize the economy.” Fu Rongqi starts to impart his experiences to Fu Guangzheng.
“Then, we can only wait now?”
“That’s right. We will wait.”
So, the Fu Family waited, and over a month passed. During this period, the Thai government had interfered and pulled up the depreciating Baht slightly. It’s already May, and Feng Yu had returned to Hong Kong. Kirilenko also followed him.
“Feng, how long more must we wait?” Kirilenko’s patient is running low. It’s more than a month, and they had lost several hundred million USD. The current exchange rate for Baht is only 25:1, and the money they earned is not enough to cover their losses. Luckily, Thailand’s stock prices are slowly dropping, and if they activate their futures contracts, they can recover most of their losses.
“We must wait until Soros, and his men contact us. Thai Baht will only depreciate suddenly when both of us dump the currency at the same time.” Feng Yu was very calm. Forex trading is very complicated and not as simple as what Kirilenko thought.
“Then why did you start to short Malaysia’s Ringgit?” Kirilenko doesn’t understand why Feng Yu did this. They had not even brought down one country’s currency, and Feng Yu is starting to target another county? Will they have enough funds to handle it?
“You should not know that Malaysia is Thailand’s biggest trading partner, and both countries’ have complicated and high debts. When Thailand’s economy is hit severely, Malaysia’s economy will also be affected.”
Why is this crisis known as the Asian Financial Crisis? It is because the economies of the countries in Southeast Asia are intertwined. They depend on trade between the countries forming tight bonds.
When one of the countries is hit, the rest will be affected, and it will be easier to attack the economies of the rest of the countries in the region.
Kirilenko nodded. These few days, he could only see they are losing money every day. If it weren’t for the Future contracts being able to recoup his losses, he would have withdrawn from this operation. Without Feng Yu, Kirilenko will never attack Thailand’s economy even with Soros’s invitation.
How rich is Thailand? The real GDP per capita is over 3,000 USD and is several times higher than China. This is almost equivalent to a developed country.
But the weird thing is the average debt per person in Thailand is over 1,500 USD. That means the overall debt of Thailand is more than 50%.
Thailand’s economic development depends heavily on foreign investors and their export. Their exportation makes up about 42% of their GDP, and this is a significantly high proportion.
This proportion is common in many coastal countries in Southeast Asia, as sea trade is mainstream trading transportation.
Secondly, the real estate sector in Thailand is very popular, and it is also Thailand’s other core industry. Foreign investors made up a significant portion of Thailand’s real estate industry. Luxurious hotels, resorts, office buildings, golf courses, etc. were being built in large numbers.
Just Bangkok alone, there are two international exhibition centers and four more under construction. The hospitals there had three times more beds than required. Speculation in properties had become the shortcut to riches.
But there is a hidden danger in Thailand’s property market. More than 20% of the properties were vacant. The buildings and houses were built for speculators.
What was happening in Thailand is very similar to the US at the end of the 1980s and Japan. Using properties and exportation as their core industries, will form a false sense of prosperity for Thailand, and create a housing bubble at the same time.
When the US property crashed, they shifted the crisis to Japan. After that, the US used its advanced technologies to recover from the crisis rapidly. Their property market also recovered, but Japan’s real estate industry is still in a bad situation. The smart Japanese businessmen thought of a good solution, which is to recreate a housing bubble in the rest of the countries in Southeast Asia and make money from there.
This time, the Japanese businessmen are smarter. They will quickly withdraw from the market when the property prices reached the peak and let the countries’ governments take care of the mess. This way, they will earn money, affect the countries’ economy, and maintaining Japan’s position as the most powerful economy in Asia.
Thailand had used a free market economy. To develop faster, they had removed the taxes for bond trading, lowered the taxes for companies’ shares, and even provide financial support for the Bonds companies.
Removing the limits on interest and using interests to stimulate the market will increase the country’s growth in a short period. Thailand had also opened up the Foreign exchange, allowing overseas speculators to trade up to 500,000 USD. This caused the Thai government to have low foreign reserves.
Maybe Thailand had seen the benefits of having a thriving financial market in other countries, and they imposed lesser restrictions on their financial institutions. Offshore trading companies were allowed to set up, and Thailand’s 50 banks, including 35 overseas banks, were allowed to accept savings and issued loans to foreigners.
This is the reason why Soros, Feng Yu, and the rest could get loans in Baht easily.
Of course, there is another important point. Thailand allowed non-residents to set up accounts in Thailand’s commercial banks and allowed them to deposit, get loans, and exchange currencies freely. Thailand’s economy is free.
Having such policies will allow a high volume of overseas funds entering the country, and the country’s economy will develop faster. But this will also cause the downfall of Thailand in this financial crisis.
Thailand does not have tight regulations on its financial sector, and there’s a lack of supervision by the authorities. The country’s bonds and shares were opened to the outside and allowed international speculators to disrupt Thailand’s financial system.
There are also no limits to overseas investment, and the Thai government even welcomes foreign investors, as they thought it would be good for their economy.
Companies can get loans easily, and the country’s debt snowballed. The national debt percentage had exceeded more than 50% of the country’s GDP, and this is a huge problem. On the surface, the companies in Thailand were developing well, but no one considered that after adding in the debts, the companies were all making losses!
The biggest creditor in Thailand is Japan. Japan had set up the most number of banks in Southeast Asia countries, compared to other countries. They issued massive amounts of loans, and their investments in Thailand is worth more than 1 billion USD.
Even if Soros did not attach Thailand, Thailand’s economy will also not last after year 2,000. When Japan withdraw from Thailand’s property and financial market, Thailand’s economy will also collapse.