evergrande fallout
whats the fallout of all this and what’s happens going ahead?
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Chinese real estate market crashes, CCP blows up, US markets collapse - North Korea takes over both governments and bombs Russia.
Where do I subscribe to your news letter?
Clearly he already is a writer at Zero Hedge
Short term turmoil, nothing much long term. Evergrande is a very large company, but is nowhere as large and impactful as the media has been hyping it up to be. The Government would not be letting Evergrande fail if it was too big to fail lol.
Big nothingburger back at ATHs next week
Hopefully 'cause my crypto portfolio is bleeding like fucking hell
CCP will bail them out and sweep it under the rug. Too big to fail as they’re the largest developer in the country, they also need to save face and limit the contagion as much as possible
i bought the dip today, and will continue buying if the downturn continues
It isn't that simple, there are battle lines drawn at the CCP and there have been indications from the senior officials that they will let the company fail. There are many senior officials that see this as an opportunity to try and divorce the country from its obsession with real estate investment. Will it work? Who knows, it is an extremely risky gamble because if the cards come tumbling down it will take China 25 years to dig themselves out of this. Which could likely lead to a political revolution.
I would be cautious about thinking CCP will bail out Evergrande. The difference between Huarong & Evergrande is government policy.
CCP is easing the financial industry, while tightening the property industry. I wouldn't bet against the CCP if I were you...
The fallout is a Chinese market looking alot worse than the West did in 2008. Depending on how much of that debt western banks hold we could see spill over but I personally don't see that being a large problem in terms of reality. The big problem comes in if Chinese firms start dumping western assets to shore of capital stocks back home. We could see asset price instability here due to that. Well that and stupid panic stricken western investors dumping western assets because they are worried about contagion. But the domestic Chinese market is very isolated from the global markets when compared to the rest of the worlds interconnectedness. While yes we have some exposure it is nothing compared to what China has internally. This has the ability to create a tidal wave in their internal markets if this collapses confidence in that entire house of cards they have built up over there. We could see many developing nations be able to wiggle free of the debt trap China has been creating with it's one belt one road project. Given the fact that China is going to need to start tightening the noose on these nations we could see a rebelion and outright rejection of the debt trap.
Personally I see this being a much larger political risk on the global stage than a financial one.
The Belt and Road was China's way of hedging against this. Because China's fairly industrialized at this point there isn't much demand for concrete buildings or coal plants, so the companies go abroad and build them in other countries. The problem is, a lot of these countries are in very poor financial situations and may not be able to afford all that debt. Will they ever pay it back?
Personally I think China's having some growing pains, the famous "middle income trap". Labor intensive manufacturing and construction can't be their bread and butter forever, and it may be an ugly shift.
The demand for construction has never been higher in the country. China is looking to internalize its economy and grow internal consumption. This requires growing wealth, which in China means more real estate. Are they building internationally, sure but that hasn't made a dent on the internal developments, that has continued to grow at a rapid pace. If it wasn't for the central government putting a limit on how many homes a family could have this would have only continued to expand.
The belt and road is about securing strategic mineral assest through debt defauts. China is hoping they default and will be able to seize strategic assets.
I don’t know if this will be the straw that breaks the camels back but it is an absolute certainty that there will eventually be a real estate crash in China that will be similar for China to our great recession.
Why? You really think the guys over there didn't learn from us? They better have, I don't want another fuckin crash
The world doesn't care what you want.
Well no one is as smart as you man. They should have saw it coming…I can already tell you’re gearing up for some Monday morning quarterback.
Markets are up in China now. As I said, a nothingburger. People are so desperate to make literally any slightly negative event the next big "crash" because they have cash on the sidelines and are scared to deploy. It's that simple.
The world's most valuable real estate company imploding is not a nothingburger, even if the effects are mostly contained in China
China’s market is closed for Mid-Autumn Festival
Fallout:
Credit market should not return to pre-Evergrande levels. SOE's and other large companies were priced as "implicitly government guaranteed." That goes away now.
What happens next:
Property sector will slow as CCP intended. May have slight effect on global equities as we are seeing now, but will not cause any systemic problem. Buy the dip in indicies (not Evergrande).
Will they get bailed out?:
Who knows, but I see a lot of people assuming they will... I wouldn't be so sure. Huarong got bailed out, but they also operate in a sector the CCP is currently easing. Evergrande is operating in the industry the CCP is tightening most. The whole point of this is to shake the property market and use Evergrande as a pawn. I wouldn't bet against the CCP.
Also, top credit research in Asia is saying that even if they made these payments, their cash flow doesn't support them being able to meet 2022 and 2023 principal payments, and I doubt CCP will allow continued refinancing over the next few years.
On the other hand, they are vital to China's growth, so I could see the other side. But personally, the probability of bankruptcy is greater than that of a bailout IMO.
Posted on another thread, but Evergrande is in trouble because the lines of credit that allowed it to sustain its overleveraged model have dried up suddenly. Lines of credit don't just evaporate unless you have strong signals: aka the CPC Central Committee deleting the entire private tutoring industry in late July, followed by a certain leader talking about "common prosperity" on Aug 17 and the CPC Publicity Department going after the entertainment industry on Sept 2, among many other actions.
Evergrande's famous Xu Jiayin resigned the same day as Xi Jinping's common prosperity speech, Aug 17. Literally two days later, Aug 19, the People's Bank and the Banking and Insurance Regulatory Commission had a talk with Evergrande. Providers of credit saw the writing on the wall and stopped extending credit to Evergrande. All this got confirmed by Ministry of Housing on August 31 which affirmed that "housing is for living, not for speculating", and afterwards Evergrande's issue eventually made it to headlines.
So in a word, Evergrande's problems are by design. The CPC did not "let this happen" so much as they are actually facilitating this process. When CPC decides to restrain or wipe out speculators, they do so. They wiped out speculators as one of their first acts as China's ruling party in 1949-50 using the police, they did so again in 2015, and now they're doing it yet again.
This is not at all triggered by CCP actions in late summer (tutoring in July, common prosperity Aug 17, or entertainment industry Sep 2nd as you mentioned).
This has been all Asia credit has been talking about since Spring, it only just made headlines in the US in the past few weeks though. Their bonds fell off a cliff months ago and everyone who was paying attention knew they were going to default.
This is related to CCP's plans common prosperity (as well as lifting birth rate and redirecting capital to high tech sectors), but not as of Sep 2nd. This is as of CCP's statements months ago.
Everyone saying that the Chinese government will bail them out is completely clueless of what is going on in Asia lmao. They will just corporate raid Evergrande and make it a government company.
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