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- Jake Friends come and go. Enemies accumulate.
Which is why the parenthesised part of "a significant (and credit worthy) load center" brings the country of manufacture into play: in what currency is the credit being created? If its being created in Yuan Renminbi, then Shanghai is both a substantial and a quite credit worthy load.
But if the credit is drawn on an electrical utility, rather than on the Chinese government, the fact that China plays neo-mercentalist games with their currency raises reasonable suspicions about the multiple-decade credit worthiness of an enterprise that sells in Yuan Renminbi, if its loan is denominated in € or ¥ or US$. I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
The way that a nation avoids becoming exposed to an exchange rate meltdown a la many Southeast Asian nations in the Asian Financial Crisis is avoiding excessive debt denominated in foreign currency.
But if the credit is drawn on an electrical utility, rather than on the Chinese government, the fact that China plays neo-mercentalist games with their currency raises reasonable suspicions about the multiple-decade credit worthiness of an enterprise that sells in Yuan Renminbi, if its loan is denominated in or ¥ or US$.
It looks to me like political risk would be a lot more significant than vanilla currency risk over a 20-30 year period.
Substantial credit risks here are (1) the exchange rate risk and (2) the default risk of the actual borrower. From the perspective of US-based consortium raising funds in US$ capital markets, that default risk has to be seen as quite substantial. By contrast, for a Chinese-based consortium raising funds in China, converting what foreign exchange they require on a current rather than capital basis, the default risk seems likely to look much better compared to other investment opportunities in China. I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
Of course, loss of ability to maintain the peg is not always distinguishable from loss of willingness to maintain the peg. But it usually is, and I think it is useful to distinguish between the risk of a foreign government deciding to screw your investment over and the risk of a foreign government being unable to decide not to screw your investment over. The latter is a risk which can be forecast with some delicacy. The former is far closer to a Knightian uncertainty.
I find that it usually pays dividends to separate those two sorts of risk.
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