How to break through the international infrastructure market in the post-epidemic era
At the beginning of 2020, almost all countries in the world were caught in a "world war epidemic"
caused by the new type of coronavirus pneumonia. At present,
countries have learned from China’s anti-epidemic experience,
requiring residents to stay at home to reduce the risk of virus infection. However,
this model will also force the entire social system to press the "pause button",
forcing the flow of people into a state of stagnation, which
not only affects the lives and work of ordinary people, but also widely
impacts the development of the global economy and the stability of the financial system.
Accelerate the arrival of the Great Depression in the world economy
The shutdown of the social system has dealt a serious blow to the real economy and
destroyed all links of the global industrial chain. If not handled properly,
the world economic crisis and systemic financial risks may break
out ahead of schedule, and the world will once again experience the Great Depression
similar to the last century (the economic crisis originating in the United States between 1929 and 1933).
The International Monetary
Fund (IMF) released the latest issue of the World Economic Outlook on April 14, which lowered the global economic growth rate in 2020 to -3%. He also called this the worst economic recession since the Great Depression.
Even so, we may still underestimate the severity of the impact of the new crown epidemic on the global economy.
The epidemic has undoubtedly increased the risk of the financial
asset bubble bursting. Due to the impact of the epidemic, global stock markets fluctuated violently,
and U.S. stocks experienced four circuit breakers
within
ten days. The Fed was the first to directly reduce interest rates
to zero and promised to purchase an unlimited amount of government bonds.
The US authorities have also continued to "release water," and
Congress passed a two-trillion-dollar economic stimulus package,
hoping to unfreeze the economy as soon as possible.
However, the result is that companies are reluctant to use the money to invest
in order to avoid risks. Funds in the
market fall into a "liquidity trap", monetary stimulus policies fail, and the real economy is still unable to recover. From the interruption of the free cash flow of physical enterprises to the sharp drop in the price of
related assets, which deteriorates the balance sheets of financial institutions, triggers a vicious spiral of debt to assets, and ultimately leads to the outbreak of systemic financial risks. The depletion of funds is
even more a nightmare for emerging markets. Georgieva, President of the International Monetary Fund, said that due to the impact of the new crown epidemic, investors have withdrawn US$83 billion from emerging markets,
which is the largest capital outflow in history.
However, the huge hidden danger that is unknown is actually the total global debt.
The World Bank issued a report warning of global debt risks on January 8,
and pointed out that new global debt crisis risks have emerged. As of
the end of the third quarter of 2019, the total global debt has increased to 252.6 trillion U.S. dollars,
and is expected to exceed the 257 trillion U.S. dollar mark by the end of the first quarter of 2020, which is
322% of global GDP, a record high. And we are right at the top of this debt cycle, and the risks can be imagined. In a sense,
the world economy has been substantially bankrupt, and all this will have a major negative
impact on the global infrastructure market.
Frozen international infrastructure market
Under the influence of the new crown epidemic,
the global supply chain is broken, the transportation of goods is blocked,
the price of raw materials has skyrocketed, the investment volume of international engineering projects
has dropped sharply, the contract value will fall sharply,
and the overseas engineering market will be cleared. Even with optimistic estimates,
when the epidemic slows down in the second half of 2020, the global
infrastructure market will gradually recover and rebound on a small scale, but its fundamentals have entered a period of recession and will even fall into an ice cave. Based on the following four points, the past glory of
Chinese contractors in the international engineering market may become history and never return.
First of all, the effective epidemic prevention and control measures that various countries can
take are to restrict the movement of people. This model is undoubtedly a fatal blow to the
labor-intensive infrastructure
industry. At present, many projects have been suspended or delayed.
The host country government has imposed entry restrictions on foreigners, making it more difficult to apply for entry visas and work permits, affecting the
organization and progress of the project. At the same time, many host country governments restrict crowd gatherings and implement stricter medical
inspections and other sanitary measures for foreign employees. As the new
crown epidemic broke out in China, just in time for the Spring Festival, many employees (laborers) on projects return to their country for vacation,
and will be restricted or required to be quarantined when returning to
work and entering the country, and may be treated unfriendly locally. These undoubtedly increase the cost of
contractors and cause physical and mental stress to employees. Under the new crown epidemic, both parties are
injured, so it will be extremely difficult for the contractor to claim compensation based on force majeure.
Secondly, the new crown epidemic has not only blocked
the transportation between countries, but also disrupted the global supply chain system. Many raw material
and equipment manufacturers cannot start production in time, and
the difficulty of transportation has increased, resulting in extended supply periods,
increased transportation costs, and even supply.
The company went bankrupt due to the break of the capital chain, causing the
construction unit to be implicated.
Third, since the focus of all countries is on the prevention and control of the epidemic,
although many countries have introduced economic stimulus plans,
they are mainly aimed at preventing financial crises and strengthening
capital liquidity. These budgets often squeeze the investment funds of large-scale infrastructure projects. ,
Causing many planned projects to be stranded, and even some projects that have won the bid will be postponed or
stopped. For example, the cabinet of Bahrain approved a package of economic stimulus package worth 11.4 billion U.S. dollars
(equivalent to 29.6% of Bahrain's 2019 GDP) on March 23 to hedge the possible adverse
effects of the new crown epidemic on the national economy.
Fourth, once a global economic crisis breaks out, the first will be the infrastructure
industry with huge investment, slow production process, and complex industrial chain.
The entire industry will enter the ice age. In the
second half of 2020, the global infrastructure market may be concentrated on large-scale
government overdue default payments, especially in countries with weak repayment capabilities.