China's Lehman Brothers moment
By Justin Pyvis – Delivered on 20 Sep 2021

Good morning! Victoria's long awaited reopening plan was unveiled on Sunday, with restrictions to ease when the state reaches 80% single-dose and then 70% double-dose coverage, i.e. late October. At that point "Victorians who choose not to get vaccinated will be left behind", with activities and freedoms only available to fully vaccinated people.

The government is also planning to extend its 'no jab, no job' mandate from construction workers to all healthcare workers (15 October for one dose), followed by teachers, childcare workers, parents of childcare workers, hospitality workers and patrons.

According to Premier Daniel Andrews, the "ultimate end point" is when the state reaches an 80% fully vaccinated rate, which is when travel will resume and all retail and all hospitality will reopen with density limits. In terms of enforcement, the state will pass new vaccine mandate laws rather than relying on individual businesses.

Victoria's government certainly seems to be taking a heavy 'stick' approach, with very little 'carrot'! 😬 You can read the state's full roadmap here.

Elsewhere, NSW Premier Gladys Berejiklian announced that her state will trial a 7-day home quarantine option for overseas arrivals in the next several weeks. If successful, it's likely NSW will move to that model for all arrivals once the state's vaccination rate reaches 80%, doing away with hotel quarantine for fully vaccinated travellers.

Finally, Friday's national cabinet was presented with updated Doherty Institute modelling which recommended that even at 70% fully vaccinated it may be "prudent" to maintain restrictions such as stay-at-home orders, capacity restrictions and group size limits. Every state also agreed to include people's COVID-19 vaccination status in their respective check-in apps, paving the way for vaccine passports.

We don't know about you, but that updated advice means the odds of COVID-free states such as WA and QLD joining the National Plan before a 80-90% double dose rate is probably close to zero, given it would be a step backwards in terms of freedoms for people in those states. 🤷‍♂️

Fully vaccinated population (aged over 16)


















Weekly % change




10Y Bond






Brent (bbl)



Gold (oz)



Iron ore (t)






Note: Brent oil, gold bullion and iron ore prices are the second futures contract.

The US S&P500 plunged 0.91% on Friday to notch up its second consecutive weekly decline. The materials sector was hit particularly hard along with Big Tech, as doubts continue to linger about the economic recovery, China's property sector (a big consumer of raw materials) and inflation – the US 10-year Treasury climbed to a more than one-week high.

Locally, the ASX200 was similarly slammed 0.76% as the country's mining companies all took large haircuts following heavy falls in iron ore prices. A notable mover was iron ore miner Fortescue Metals Group, which shed 11.5%.


Fizzling out: UK retail sales fell 0.9% in August, the fourth straight monthly decline and longest losing streak for 25 years.

Consumers still worried: The University of Michigan's US consumer sentiment survey improved slightly in September (preliminary) although remains low, with consumers expecting "the least favourable economic prospects in more than a decade".

Canada decides: It's election day in Canada, with the latest polls suggesting Justin Trudeau will hold power but won't get the majority he was seeking.

The rot runs deep: An ethics investigation found that the Managing Director of the International Monetary Fund, Kristalina Georgieva, was involved in placing "direct and indirect pressure" on staffers to boost China's ranking in the World Bank's "Doing Business 2018" report, back when she was the Bank's CEO.

China's Lehman Brothers moment

The iron ore price fell 20.8% last week and has more than halved from its peak back in mid-May. The reasons are multiple but mostly stem from a slowdown in China, as the large stimulus from last year is fading, steel production may have peaked ahead of the winter Olympics, and its heavily-indebted property sector threatens to take down more than just Evergrande.

Stepping back: Some have gone so far as to describe the Evergrande crisis as "China's Lehman Brothers moment", because as the risk of insolvency increases "conditions can quickly spiral downwards unless someone like the government steps in to guarantee payments".

Lehman Brothers, for those who don't remember, was a global financial services firm that failed spectacularly during the Global Financial Crisis in 2008. If a similar situation were to occur in China, the financial contagion stemming from its collapse – its $US300 billion in debt is around 2% of China's annual GDP – could reverberate across the world.

Why this matters: Australia exports a craptonne of iron ore – 867 million tonnes in 2020 alone. A lot of tickets get clipped along the way, from the employees and shareholders of the mining companies all the way to the state and federal governments. If China's iron ore demand wanes, it means significantly less export, royalty and taxation revenue for Australia (and lower share prices for many companies).

Looking forward: China won't be concerned about the plight of Australia's iron ore miners or its government. But it will be concerned about Evergrande and the risks it poses to the Chinese economy.

If China's government bails out Evergrande, it would fly in the face of President Xi Jinping's recent push for "common prosperity", given the lifestyles enjoyed by its founder Xu Jiayin – who is highly ranked within the Communist Party and paid himself $US5.3 billion in dividends as the company piled on debt – and its executives, six of whom "redeemed some of the company's investment products in advance earlier this year".

While Xi may ultimately have no choice, it means the government's approach will probably be more subtle than a direct bailout. For example, perhaps the government will zombify Evergrande, rolling over its debt or asking bondholders to take a haircut until projects can complete and it's eventually wound up.

Either way, it spells trouble for China and Australian iron ore as many of China's steel-heavy investments over the past few years – big contributors to GDP growth – were likely wasteful, acting as a drag on future growth.

The Wrap Up
  • ✊ Thousands hit the streets over the weekend to protest lockdowns in Perth, Melbourne, Sydney, Byron Bay and Brisbane. The protests in Melbourne were especially heated, with 235 people arrested and six police officers hospitalised.
  • 🐍 Christian Porter resigned as a cabinet minister because he was unable to provide "information regarding who paid for his legal bill in a defamation trial against the ABC".
  • 🎥 Theatre chain AMC will start accepting cryptocurrencies including Bitcoin, Ethereum, Bitcoin Cash and Litecoin.
  • 💱 China officially applied to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a trade agreement involving 11 countries including Australia.
  • 😭 France withdrew its ambassadors to Australia and the US over the submarines deal. That French sub deal must have been shocking bad for Australia (and obscenely good for France).
  • 💉 The US FDA rejected calls for booster shots to be rolled out to the general population, only improving a third jab for people aged over 65 or those at high risk for severe disease.
  • 👩‍💻 Google and Apple caved to pressure from Russia's government, removing jailed critic Alexei Navalny's voting app from their stores. Russia goes to the polls on Friday.
  • 🧒 The latest estimates from the UK's Office for National Statistics found that rates of common symptoms after COVID-19 ('long COVID') for kids aged under 12 were between 0% and 1.7% when compared to a control group.
  • 🗣️ Moderna is in talks with the Australian government to shift production of its COVID-19 vaccine down under.
  • 🦘 The Wallabies defeated the Springboks for the second week in a row, moving up to third in the world rankings.
  • 🚀 The US government admitted that its final drone strike in Afghanistan was a mistake that killed 10 innocent civilians, including 7 children.
  • 🍷 Port Adelaide's Ollie Wines picked up the AFL's 2021 Brownlow Medal, the first ever Port player to do so.
  • 🤔 The company that created US Rep. Alexandria Ocasio-Cortez's "Tax the Rich" Met Gala dress has a history of... wait for it... not paying its taxes.
If you were forwarded this Wrap, why not sign up for yourself - it's free!

China's Lehman Brothers moment was brought to you by By Justin Pyvis. Forwarded this issue? Click here to subscribe.