Evergrande teeters on edge of default as $148M payment falls due
reuters.com
reuters.com
Watch the US bond market closely. Today saw a sharp selloff on the 10-year maturity, a favorite "asset" of foreign governments and companies. When those organizations get into trouble, they sell treasuries to raise cash. "Trouble" often comes in the form of dollar-denominated debt which must be serviced in dollars.
As the dollar rises, borrowers of dollar-denominated debt must raise more local currency to buy the dollars to service their loans. That puts further upward pressure on the dollar, distressing foreign usd-debtholders even more. It's called a "short squeeze":
https://www.lynalden.com/global-dollar-short-squeeze/
The entire world (including the US federal government) has taken a short position on the US dollar by assuming obligations requiring them to pay later in dollars. Ask any Ape on WallStreetBets what happens to shorts during a short squeeze, and you'll get the same answer: they get rekt.
The dollar spiked past a key technical level today.
https://www.tradingview.com/chart/?symbol=DXY
In 2020, a similar dynamic took hold, with stocks, bonds, and gold falling in price as the dollar surged. We may not be there yet, but the scramble for dollars in China (and possibly all of Asia) is just starting.
The US Government sells treasuries and bonds to raise dollars. These have to be approved by congress, which is why every so often you'll hear about government shutdowns, because, yes, if for whatever reason, the US Congress doesn't pass a debt ceiling lift, the US Treasury will not have enough money to run things anymore.
Then there's the Federal Reserve, which loans dollars to banks to create liquidity and velocity in the monetary system depending on certain conditions (Primarily inflation and unemployment I believe).
(Presumably there's a fair amount more to it than that as well).
So an increase in borrowing from various parties pushes the interest rate higher (the banks would want to charge as high an interest as possible, but no higher than what would make the client move to a different bank for the loan).
The central bank could potentially alleviate and increase borrowing without interest rate hikes by allowing the banks themselves to obtain funds from CB at a lower interest (than another bank), and the competition between banks would push the interest rate back down.
If OP is right I don’t see the federal reserve acting to bail out China.
They might happen to do QE for another reason but not to help out other countries with their problems.
It has to stop somewhere. Doesn’t it? (Genuine question!)
If we get massive deflation from a “dollar short squeeze” (which I don’t actually think is likely but it’s what OP was suggesting) that means we need more inflation, which printing money would produce.
My understanding is that "printing money" with a jobs program would be more effective at stimulating spending that, say, "printing money" with cheap interest rates (which might just mostly ultimately go into people's bank accounts as they sell assets to people borrowing the cheap money).
I don't know much about "technical" forex trading, but I can say that USD/CNY didn't really change today, neither did USD/CAD, or USD/GBP. Everything is around where it's been over the past few weeks. Are you saying the real exchange rates will significantly change soon?
People will only notice when China decides its FX is running low
The US has printed 20% of all dollars ever existed since 2020. Check the exchange rates with any other currency, EUR, British sterling, Chinese RMB. Did it become cheaper? Of course not.
We will always buy USD, because it has as a collateral 8billion lives.
https://www.investopedia.com/terms/p/petrodollars.asp
https://www.bloomberg.com/news/features/2016-05-30/the-untol...
If a country wanted to not buy dollars, here's how that would go.
No Dollars: "Hi, we'd like some oil."
Oil Producer: "Great, here's how much that contract is in dollars."
No Dollars: "How much would it be in my local currency?"
Oil Producer: "Well, you see, we don't really quote in other currencies..."
No Dollars: "Fine, I'll find someone who will."
Middle Person: "I heard you're looking to buy oil with Pentali Marcograms?"
No Dollars: "Sure am, what price will you give me?"
Middle Person: "10% over the exchange rate between Pentali Marcograms and US dollars. You know oil producers trade in dollars, right?"
You are off by three orders of magnitude, which is pretty amazing.
Forex markets have incredibly tight spreads measured in pips, say 1-4 pips, where 1 pip = 0.0001.
The reason why dollars are important is that people store the results of their oil sales in USD assets. What a good is purchased with means nothing. Where you store the proceeds of the sale is what counts.
This goes to that oh-so-tired phrase 'petrodollar', which many autodidacts misuse to signal a lack of understanding of both forex markets and oil economics. What "petrodollars" means is the dollar holdings that oil exporting states maintain. It does not refer to the currency oil is purchased in. It comes from eurodollar, which signifies dollar holdings in Europe, and not the purchasing of European goods with dollars.
Once we get that definition right, we understand it as a synecdoche for US hegemony in reserve currencies -- e.g. where foreign central banks store their wealth. The actual currency oil is priced in - or anything is priced in - means nothing. What is the point of saving a pip in the forex markets if you are going to be losing .1% in bid/ask spreads when you try to store your wealth in an illiquid bond market? No one -- absolutely no one - optimizes for reducing forex costs when deciding in which nation to park their wealth. They are much more concerned with questions like "Is it legal for me to purchase these bonds? will my wealth be confiscated in the future? What kind of fees do I pay when I buy these bonds?"
The reason the world wants to store their wealth as dollar assets is because the US has a reputation for openness to foreign investment, rule of law, political stability, upholding foreign investor rights, and amazingly deep capital markets that can absorb large foreign inflows with very low spreads. So the bid/ask spread when trying purchase a few billion worth of U.S. bonds is much more important to explaining US financial hegemony than what some random country demands as payment.
I think the no. 1 reason why people get this all wrong is they still want to think we live in a world of specie flows. But there are no bearer assets in international trade - you can't take it with you back home. Your foreign trade profits are going to be stored in some custodial account in some other country. So trusting that country is a big deal. People who think trade is conducted with gold nuggets don't see this custodial account problem, and that's why they don't understand why the U.S. is a global reserve currency. That's when all sorts of conspiracy theories about oil sales, or aircraft carriers, come into play as they try to understand the U.S. role using the ideas they are comfortable with.
And what currency a good is purchased in absolutely means something!
Your claim is that people store the proceeds of sales in dollars because of the trust factors, volume, and tight spreads. But I'd say that 2/3 of those (volume and tight spreads) are consequences of its utility and use as an international settling currency. Catch 22.
Yet are those things worth enough that international exporters would continue to trade in / hold in (effectively the same, if we collapse the goods trader and forex trader into a single entity) if the dollar ran 5% inflation and low central bank rates for years?
I suppose we'll see, but that's an atypical situation in the last 50 years of pure fiat international finance.
For some small country -- and it would need to be a small country, like Sierra Leone, that cannot access the Forex markets, then they need foreign reserves ahead of time. This is true. But if they don't want to hold their reserves as USD they can hold them in EUR or YEN if they like, and then when they need to buy oil, they sell the EUR for USD and buy oil with USD.
While the USD is the largest foreign reserve, it's like 60%, there is also EUR, British Pound, Yen, and some other currencies that are ubiquitous enough for Sierra Leone to hold. These can readily be sold on the spot for whatever a nation wants as payment.
https://www.federalreserve.gov/econres/notes/feds-notes/the-....
Against everything else than other unlimited supply currencies, fiat money has fallen dramatically. It's a simple fact, not an endorsement of anything.
Everyone knows the basic mechanics of supply and demand on price, but somehow when it comes to fiat money, many manage to swap common sense with a number of convoluted theories.
Check the most widely accepted scarce commodity: gold. Gold/USD prices are now at the level they were in 2012.
Now if your argument is based on the USD price of Shiba Inu, well I have news for you.
Convenient straw man to try and classify anyone exposing the intentionality behind today's inflation levels as a crypto shill. Almost all assets have exploded in fiat values since the start of Covid printing, not just crypto. Supply chain issues didn't affect Rolex watches and metropolis housing markets, money printing, QE and low interest rates did.
We may spend 10 times more than any other nation on our military … but due to bureaucracy and other inefficiencies our spending doesn’t quite get the same bang for its buck if you will.
Also, while the dynamic you describe is real (1) the mechanics are not similar to an equity short squeeze , not a good analogy and (2) unlikely this type of pressure comes from China. They need to hold/buy treasuries to manage their currency (ie keep it weak). If they don’t, their export competitiveness suffers which is last thing that gov will allow. They have other ways of managing the situation.
So, we'll see.
“everyone knew that Inflation would be above expectations” you should think about this more.
Regardless, why does any of this make the feds clowns?
Although I'd assume, maybe it helps with traffic? Presumably people would be more interested in reading a previous financial post, if they didn't know it was 2 years old.
I'll save you the time. There are no examples.
Every currency crisis has debt denominated in a foreign currency. - Germany in the 1930 (WW1 reparations were gold marks) - Argetina (foreign borrow and currency peg to USD). - Thailand. - Turkey (now, borrowed in Euro).
https://en.wikipedia.org/wiki/War_reparations "Germany agreed to pay reparations of 132 billion gold marks"
https://www.federalreservehistory.org/essays/asian-financial... "Heavy foreign borrowing, "
https://economics.rabobank.com/publications/2013/august/the-... "Argentina’s hard currency peg to the US Dollar, pro-cyclical fiscal policies and extensive foreign borrowing"
If you're going claim a coming currency crisis, test that assumption against the historical record at your earliest convenience.
> The entire world (including the US federal government) has taken a short position on the US dollar
I read this as a prediction of some type of crisis.
Anyway, wrt the US Federal Government, having government debt is not that same as having a short position. For one, the US Fed govt's revenue (i.e. tax collection) is denominated in the same USD as the debt. So if USD goes up, tax collection go up.
"GP = grand parent, i.e. the post that the post-your're-replying-to was replying to"
I think your parent was suggesting that the behavior of the entire world is effectively a short-dollar position - whether they intended it to be or not.
Currencies going up usually leads to a reduction of exports which subsequently leads to an economic downturn, which leads to less taxes.
Apart from that, mass sell offs of government debt leads to increasing interest rates. You can buy that off with quantitative easing but probably that has limits too.
But yes, it has happened. Russia 1998 is the most well-known example. Everyone believed that because Russia could issue GKOs in RUB, they wouldn't blow up like Asia...they did. This also happened, to a large extent, in Mexico in 1994 (Mexico actually issued tesobonos, they were domestic currency denominated but shifted the currency risk to taxpayers, they were quite a security).
The reason why is fairly simple: it doesn't matter if the debt is denominated in domestic or not, because people buy the bonds and then hedge their currency exposure which leads (eventually) to the domestic banking system having the same synthetic position as if your debt was denominated in a foreign currency.
The slight issue with historical examples is that the situation is correlated to high levels of financial globalization, which largely didn't happen until the 90s. But because something has never happened, doesn't mean it is impossible.
The point is confused though. The causes of currency crises are changes in capital flows. That is really just saying: the reason why currencies fall is because people sell. They don't really need some "explanation", they definitely contra-indicate with stuff like domestic currency debt...but there is no universal theory possible beyond: people sold the currency (and so currency crises have happened with capital outflows for some exogenous reason, war, etc.).
Russia wouldn't have had a currency collapse if they had a floating currency to begin with;
> After reviewing the three generations of currency crisis models, we conclude that four key ingredients can trigger a crisis: a fixed exchange rate, fiscal deficits and debt, the conduct of monetary policy, and expectations of impending default.
https://files.stlouisfed.org/files/htdocs/publications/revie...
And that occurred after the currency crisis had started (the debt swap into Eurobonds was because of the GKOs). I am not sure what the US has to do with it. I am not sure what "Soviet-era debt" has to do with it (that debt was very soft, was rolled over multiple times in the early 90s, and wasn't related to Russia's problems). I am not sure what the IMF has to do with it (the IMF came in after it started...that is why the IMF came in).
Yes, it would have...that is self-evident. The reason the peg collapsed was because the free market/floating rate was lower. The only purpose of the peg is to stop the currency going down (again, this is a weird, self-evident proof...saying that the currency wouldn't have collapsed if they had a floating rate makes no sense, it would have collapsed faster).
A large portion of their foreign denominated debt was from the Soviet era -- just a few years prior to 1998 they committed to repaying nearly $100 billion of that old debt. Russia was accepted into the "Paris Club" based on a valuation of their sovereign assets -- 1/4 of which were loans due to them from the Soviet era from Cuba/Vietnam and other satellite countries that had no capability to repay those loans. So the Soviet Era debt was a big portion of their liability and made up a substantial portion of their assets.
None of these things are remotely similar to the US situation of almost universally US debt denominated in USD. So I think GP is spot on when they say there's 0 chance of a currency crisis.
[0] or 6.2 or whatever depending on what version you use.
Around 2017/18, the PBOC stopped doing this and allowed domestic banks to retain and invest the dollar earnings that exporters deposited. China's money supply is not directly related to the US money supply. China's capital account is still closed. All that has changed is that the onshore dollar market has increased (the PBOC retains a huge amount of control over lending decisions, Chinese state banks are not investing in US markets, it is being retained in China).
PROTIP: Anyone like Lyn Alden that is offering premium stock tips is by definition a fraud, if you can beat the markets you just beat the markets and Scrooge McDuck-it, you don't run a damn newsletter.
Quote: <<July 17, 2007—In a letter sent to investors, Bear Stearns Asset Management reported that its Bear Stearns High-Grade Structured Credit Fund had lost more than 90% of its value, while the Bear Stearns High-Grade Structured Credit Enhanced Leveraged Fund had lost virtually all of its investor capital. The larger Structured Credit Fund had around $1 billion, while the Enhanced Leveraged Fund, which was less than a year old, had nearly $600 million in investor capital.>>
After the incident, Bear took the bad assets onto their own balance sheet. Shortly thereafter, creditors starting asking hard questions: "What other crap is on your bloated balance sheet?"
That said, the PRC gov't might allow Evergrande to default on their offshore/external/USD debt, but provide a bailout onshore. That seems realistic. During the 2008 GFC, Deutsche had an enormous footprint in the United States (via commercial and investment banking). They got almost nothing from US Fed/Treasury during bailouts. Same for UBS. Why not? They were not American corporations.
I kinda get the impression that they want capital for manufacturing rather than property speculation.
Given how important house prices/construction is for their economy and growth, it's gonna be really interesting to see what they do (will they accept negative GDP growth to increase "common prosperity").
The blow up probably could have been less severe if they smoothed the landing.
My intuition (and the presumption in the U.S.) is that a market position allows a business to dispose of inventory in normal commercial channels more profitably than auctioning it at wholesale in a Chapter 7-style liquidation. Hence first-day motions in U.S. bankruptcy courts.
(Disclaimer: I worked on the Lehman Brothers bankruptcy but did not represent any U.S. or U.K. subsidiaries.)
~300 billion is the size of their debt (485 at the end of H1 2021). Their assets are at +2 trillion, +1 trillion in real estate alone.
Their problem is that with their current cash flow they can't pay their debt, ever, and now, they can't even keep up with the interest. But they're still in a position where selling off part of their inventory can offset the debt, and to my knowledge, that's what they've been trying to do.
That is, if their financial statements area real. That's the quid here, their position isn't particularly anomalous, but the market cap sits at 33 billion, very far from their declared assets, meaning the market doesn't believe those statements. Thats 60 to 1, where most REIT sit at around 2 to 1.
Their main problem is the large amount of unfinished homes (read: not producing any income) and you need money to fix that. My guess is that the government will step in to fix that point in particular.
From Wiki (https://en.wikipedia.org/wiki/Evergrande_Group), I looked at the source for total assets: https://finance.yahoo.com/quote/3333.HK/balance-sheet?p=3333...
At end of 2020: Total assets: 2.3T CNY -> 359B USD (@ 6.40 CNY/USD) Total debt : 0.7T CNY -> 109B USD (@ 6.40 CNY/USD)
Holding debt in another nation's currency involves risks but it is also the case that bond issuers can mitigate that risk with financial tools at the time of borrowing. It is doubly true that the CNY has and still is trading within a narrow band over the life of these debts, currency risks are not a factor in this story in any way.
Lyn Alden's site is a wealth of knowledge but I don't subscribe to any newsletters.
Well, they're expected to do that to maintain their stature as the "lighthouses" of the financial system
> Thomas Mazarakis, who heads Goldman’s fundamental strategies group, told select clients in an email that his unit often provided investment ideas that the firm had already traded on and the firm sometimes took the opposite approach, betting against particular instruments recommended by the group, the Times said.
> “We may trade, and may have existing positions, based on trading ideas before we have discussed those trading ideas with you,” the paper quoted Mazarakis as writing in the email. [1]
Would seem a good way to monetize your audience is to (a) get paid to (b) take positions and then (c) control the narrative around your positions - both publicly and to paying customers to gin the position up.
[1] https://www.reuters.com/article/us-goldmansachs-trades/goldm...
Hmmm , depends on what these "tips" entail right? What if another website offers long term hold advice via a newsletter and charges you for it? As a matter of fact, I do subscribe to one in India (no , I am not going to publicise it. DM me if you want to know) where the holding periods are anywhere between 2yrs to 5 yrs. There are disclosures that say whether the stock analyst holds the stock/bond etc.
On the contrary, the worst advice comes from people who have no accountability or reputation to worry about.
For all I know you are right about Alden's ethics, but the EMH is not baked into the definition of fraud.
In fact, many investors do offer public trading advice: it's common among short sellers to both short their targets and publish analyses explaining why they think their target is overvalued. This is controversial, but if it is clear to receivers of the advice that the advice comes from a short-seller whose positions are known, then I do not regard it as particularly unethical.
I've been reading everything I could on economy and finance in my early twenties and Lyn Alden blog is the only thing I needed then and wasn't available. She is pure gold — I know no one that is able to explain complex topics in this context with such clarity.
If their economy continues its downturn then this precedent would hold for all debt. I would really watch personal funds and investments and insure they dont hold any chinese debt as an asset.
this is the funniest meme, “we made it up” https://youtu.be/GM-e46xdcUo
Its a pretty clever meme because pointing out how dumb it is makes it seem like that person doesnt believe there is anything else wrong with tether, immediate derailing their criticism of the latest rumor, allowing for literally any rumor to be masqueraded as truth.
From what I've read, other paricipants in the US market have stated they don't see Tether partipating there, to that kind of volume.
Combine that with the fact that, until recently, China was a huge market for crypto both miners and traders, and it seems likely that the large chinese commercial paper market would be where Tether would have at least some of it's money.
It is not unreasonable to think China has good chunk of those deposits, and in China real estate is a big component of the economy and growth in the recent years.
Chinese real estate market is both large enough and opaque to be able to ingest that kind of capital.
[1] It is possible they are issuing tokens out of thin air without actually taking in equivalent USD/fiat currency, but given it trading volume on crypto exchanges it seems unlikely say 90+% of their $73B + are tokens fake. Even 10% is $7.3B a very significant sum.
Anything else is ridiculous because people would notice it. If it is all self-contained withing crypto then it makes vastly more sense.
Once you think of a cold wallet full of bitcoin as having value like real estate[*] then it makes sense to take out tether loans against that collateral.
They need to make up something though to sound responsible so they call it "commercial paper" and for some reason nobody questions if they might be grossly twisting the meaning of those two words.
[*] Which I don't, but everyone involved in crypto certainly does.
Why would better managed and more transparent competitors like USDC, GUSD, and PAXOS all be rising in circulation at the exact same trajectory as Tether, if Tether was just doing funny money accounting or having completely uncollateralized Tethers compared to just the same distribution of regional crypto enthusiasm in the same kinds of transactions. What if, yeah I know, what if people actually just deposit fiat and rarely redeem for fiat because they treat stablecoins as basically their savings and investing account. The craaaziest idea, I know, but the behavior is being mimicked across all fiat-backed stablecoins which suggests that its harder to assume the worst about Tether simply because its never transparent enough and yeah, it won't be. My only point is to think "hm maybe people actually use it and like it and that's the vast majority of the creation of more tethers just like two US regulators found."
That would effectively be $70B parked under a mattress.
The same with other bank account stablecoins.
Much of that Tether is stored within liquidity pools and other onchain financial services, the same with other bank account stablecoins. So thats not a great assumption to bolster the ongoing transparency issues with Tether.
Even the earlier assumption that Tether wouldnt have US assets is made up on the spot, its weird! They were banking in Peurto Rico for years! Two US regulators didnt move to freeze their assets they just said “update your disclaimers”. Why dont we make a rumor that they hold Hertz bonds and Certificates of Deposit at Capital One Bank? Its arbitrary! They should prove they dont have Hertz bonds just so I can say “I …. dont believe you.”
It could be said that the rating agencies were complicit, since their ratings were trusted by various parties by assumption and did not do their own due diligence.
What you describe is a known risk that anyone with a lick of sense should be accounting for, before they invest.
B) Why should the US do anything? If your risk profile when dealing with Chinese companies doesn't include the risk that the CPC will change the rules of the game later to benefit the domestic economy, you're a sucker.
*Except the things that make me confused and angry, even if they benefit other citizens.
Welcome to neoliberal hell.
The problem with politics is the left knows it's not always right.
Of course these options (and probably any other options you imagine) would have pretty wide reaching side effects - to the extent that I'm not even sure they are worth the cost - but they definitely exist.
B) Because transfer of wealth from US investors to China harms US interests, the US government exists to serve US interests and part of that is standing up for their nationals in international trade.
> Because transfer of wealth from US investors to China harms US interests, the US government exists to serve US interests and part of that is standing up for their nationals in international trade.
I am not convinced apriori that this is the case, and don't feel comfortable having politicians who definitely have no clue whether that is the case making the calls.
Also arguably unconstitutional
Umm how?
https://constitution.congress.gov/browse/essay/amdt14_S4_1_1...
> The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. But neither the United States nor any State shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void.
The US defaulting on any debt is unconstitutional.
B) The US should do something, because if they don't, China will continue to take advantage of US ineptness. States have powers which investors simply don't have.
Now what, the government stops people from trying to make a quick buck on a high risk investments? We can start from stopping Americans from paying 7 figures for digital drawings of monkeys
NFTs are even more moronic than that: they are nothing more than links to external content - Tweets, images, videos, whatever. Meaning that everyone who wants to see and reproduce the content you paid a million dollars for only has to download and dump the corresponding blockchain... and also meaning that you are the proud owner of a bit of nothing when the external hosting service goes down.
If you ask me, NFTs are a combination of tulip mania, scams and good old-fashioned money laundering using art.
The example i use is this. Think of the Green Rolling Hills photo that was on however billion windows desktops. The original owner could have copyrighted that photo and registered its first upload onto the blockchain. It is registered then as the first photo of a very specific high use photo and i would say that digital asset has a value.
Crypto Kitties etc are not my cup of tea, its the value created by the option of the tec that i think will have ramifications. I am working on a project in this space currently.
That's what the US has the Copyright Office for ffs!
You are focusing on this one type of transaction whereas the reality is that the Chinese state exercises influence in a lot of other areas where US investors have no control. Say, for, example using state-sponsored hacking and espionage to give an unfair advantage to their investors on the international free market. Something US investors could go to jail for if they tried to do. I repeat, if the US doesn’t fight for US investors interests, China will nonetheless fight for theirs.
If private investors want to invest in China, that's fine. But pensions and banks should not, and should not be investing in funds that do. Their risks are shared, and China trashing their balance sheets is a public policy concern.
It could be argued that pensions should not be investing in risky bonds (or assets), but this idea shouldn't have anything to do with china specifically. Institutions that can't absorb these risks should not take them.
Just because it's china related, doesn't mean that the gov't should have a specific policy to prevent it from happening (but allow these institutions to invest in other, equally risky assets). To allow such policy to be set is to turn investment into political weapon. I do not want to see that.
That's a wide ranging / impossible mandate there.
How is Evergrande's foreign debt default translate to "waging economic warfare via equity markets"? Of course China is responsible for its own domestic debt, because evergrande borrowed from state-backed banks. Are foreign debters also backed by Chinese government? Are you suggesting Chinese government should take responsibility for foreign investors?
And "for a while"? Name another case remotely matches "economic warfare".
Facts:
* US pension fund lost 400B on China investment. That's total in US not directly related to the "inside man in the CA pension system". But wait for others facts below.
* This CA pension system inside man "Yu Ben Meng" is chief investment officer of CA public employees retirement system (CalPERS). He "has long and cozy relationship with China". Because he was recruited into the "thousand talents" program.
* CalPERS invested 3.1 billion into Chinese companies. The amount lost because of them us undisclosed in the article.
Back to your statement:
> China basically had an inside man in the Californian pension system
He is recruited as thousands talent program. The relationship is claimed to be academic.
When his investment decision into Chinese companies on behalf of Cal PERS is unknown. To substantiate your statement, at least, based on the known facts, there should be a casual connection between his recruitment to thousand talent program, and later decision to invest into Chinese firm.
Further, the investment gain from this investment needs to be negative or noticeablly below market norm to actually give any doubt that such investment was not driven by sane investment assessment.
> Beijing then pulled the carpet out from under them, causing 400B in US pension losses
It's strange to paint this as a economic warfare.
Why is regulatory action with the intention to curb private corporations' influence (as western media like to portrait), being transformed into economy warfare.
Of course, it's not a stretch to claim that in this action, CCP indeed achieved the purpose of economic warfare.
But that's just usual international business. US fed has already caused global financial crisis, because of their domestic policies. For multiple times over the 20 and 21 centuries.
Did US wage economic warfare against all other nations on earth? (Because of US dollars' supremacy)
If one admit US is wagging war, then sure, China is also waging a war.
Call this whatabohtism.
But at least make it clear that this is not some Chinese specific evil. This is a universal evil.
As a Chinese myself, I don't want to be the spagagoat once US China got into an actual war. CCP is as bad as USA, thats not any Chinese fault.
And who is not investing in China? Ray Dallio? He must be a more China inside man. As he is not only investing in China, he openly claim it's still good to invest in China!
Mr. Yu Ben Meng, aside from being a Chinese, is he doing more pro China than Mr. Dallio? I cannot find any such evidence from your article.
So the reason call him a China inside man, is just because he is a Chinese?
Tell me, except the word "racism" what should I use to describe this reasoning?!
Should I spend time engaging with this guy who appears not reading, or cherrypicking statements, or plainly trolling?...
I think the one sentence explanation is that your statement is plainly racism.
Even in this post, you admitted that "This guy is under investigation", yet you are able to use a unsubstantiated charge, and blow it into China economic warfare, and label that person as "China inside person".
> that’s a lot of words that doesn’t address anything
Sure, tell me, which part is address nothing?
We are talking about a random US Chinese person, where did I defend CCP?!
WHAT KIND OF STUPIDITY IS NOW RAMPAGING ON HN!?
https://californiaglobe.com/fr/us-pension-funds-lost-400-bil...
It is not easy.
At the spot of seeing something that you feel strongly, it's an exercise of strong will to actually have a clear mind and use rationality to communicate.
Emotion is the fuel of mental activity. It likes to explode. The mind's role is to place it on steady pace, and generate power that actually changed things, instead of just exploding on spot.
Thanks, you answered all I need to know with this comment here. Judging the validity of OPs argument based on your personal dislike of amp in a url.
But what would you call it when American investors make boatloads of money investing in Chinese stocks? And should the US regulate away their ability to earn those returns?
Since US investors can also lose money when US companies default, should investors also be prevented from investing in those too?
Incidentally, this "protect investors" logic is the same reason for the accredited investor regulations that prevent the masses from investing in startups.
Unless there's some element of fraud undertaken on the part of a national gov't (like CCP), which only the US gov't could present as a counter to, there should be no intervention from the US gov't about the defaults in china and the investment losses incurred to US citizens.
If you've got your "thumb on the scale" as the saying goes, there will always be forces that try to exploit that condition.
From Matt Levine:
It seems to me that what is interesting about Evergrande is not so much the magnitude of its debt problems but their variety. Evergrande owes money to Chinese banks. It owes money to foreign hedge funds, and foreign investors own its stock. It owes money to suppliers, and to Chinese retail investors in those wealth management products. And it owes apartments to buyers. And the retail investors who bought Evergrande wealth management products were often also Evergrande homeowners, because the products were sold at Evergrande buildings:
“My parents put the bulk of their savings, which is Rmb200,000 and not a lot by Evergrande’s standard, into its [wealth management products],” said the daughter of one investor who asked to be identified by her surname Xu.
She said an Evergrande financial adviser stationed in an apartment tower built by the company in central China had persuaded her mother to invest. “They wouldn’t have trusted Evergrande’s wealth products had they not bought the developer’s apartment,” she said.
"I bought from the property managers after seeing the ad in the elevator, as I trusted Evergrande for being a Fortune Global 500 company,” said the owner of an Evergrande property in the conglomerate's home province of Guangdong surnamed Du.
When the troubled Chinese property giant Evergrande was starved for cash earlier this year, it turned to its own employees with a strong-arm pitch: Those who wanted to keep their bonuses would have to give Evergrande a short-term loan.
Some workers tapped their friends and family for money to lend to the company. Others borrowed from the bank. Then, this month, Evergrande suddenly stopped paying back the loans, which had been packaged as high-interest investments. …
The extent of the campaign and how much money it might have raised were unclear. Employees were told to each invest a certain amount of money in Evergrande Wealth products, and that if they failed to do so, their performance pay and bonuses would be docked, employees told Anhui.
When a big company runs out of money, the basic questions are (1) who gets paid and who doesn’t and (2) should the government pay its debts for it? Those questions are interconnected. There is an ordinary way to answer the first question, some waterfall of claim seniority. You look at the company’s capital structure and say “well these people have senior claims and will get paid back, and these people have junior claims and won’t, and these other people are somewhere in the middle and might get some recovery.” And there are complex and subtle questions about the best way to preserve value in the business: Perhaps you have the legal right to stiff customers (perhaps their deposits aren’t particularly senior claims), but if you do that you’ll never get any more customers, so you treat them better than you are legally required to. And the managers of the business and the creditors and the lawyers work together to figure out a plan that maximizes the recovery for everyone.
But if the ordinary process to answer the first question ends up with an answer like “sympathetic ordinary people lose their life savings,” or “politically connected people lose everything,” or “the banking system loses a lot of money and becomes undercapitalized,” or for that matter “housing prices collapse,” then that is a good reason for the government to step in. And if the government is stepping in, there is no particular reason to assume that the ordinary claims of seniority will apply. If the government steps in to rescue small investors or the banking system or housing prices, that doesn’t necessarily mean it will also rescue foreign hedge funds.
Bloomberg’s Joe Weisenthal and Tracy Alloway did an Odd Lots episode with analyst Travis Lundy about this, in which he gives his best guess at a waterfall of repayment. “I think that if you start from the ranking of who ends up coming out well on this, if you had to ask, this is the Communist Party of China who's the most important stakeholder in this,” he says, and then goes through a list of claimants ordered by, basically, how politically sympathetic they are. This seems like a more reasonable analysis than, like, looking at the corporate structure and legal document to see which claims are more senior.
Much of the writing about Evergrande has been about “is this China’s Lehman moment?” The main lesson of Lehman was that the collapse of a big levered interconnected firm could cause serious economic damage, and since Lehman, financial regulators in the U.S. and Europe have done a lot of work on reducing leverage and interconnection and damage.
The idea that tying the money to some physical (gold standard) or mathematical (Bitcoin) “reality” is somehow preferable is just the naturalistic fallacy wrapped in cynicism, namely that today’s institutions are incapable of making better decisions than the completely arbitrary whims of these alternatives. And all the ghosts people seem haunted by (hyperinflation) are figments of history a century removed.
The reason why Evergrande has accumulated so much foreign debt in the first place is because no domestic bank wanted to touch them with a ten foot pole. After all they have effectively defaulted once already by unilaterally declaring an equity swap on 130 billion CNY worth of maturing bonds in September last year.
Sounds like this is mostly domestic debt, so they cant make this go away by saying they wont support international debt holders. Seems like the CCP in a tough spot here.
This will put a huge hamper on China's FDI: if foreign investors are given a worse place in line in case of insolvency, they will either shy away from investing at all or demand higher returns for the extra risk.
I think it's safe to say that even if every last dollar of FDI dried up, China would be more than fine with its domestic capital supply.
Furthermore, the identities of the big FDI investors are dominated by physical manufacturers investing in onshore operations. Not so much liquid global securities trading.
My reading from above pieces of information:
it's not that important yet. Maybe they will pay late again as they did previously when they were late one day.
It seems they didn't but we won't know until tomorrow or so.
https://twitter.com/dhthakur745/status/1458499174026997760?s...
But the clearinghouse managing the bonds said those have been paid later, just like last time.
Notice the latter also says "they defaulted again", which is not true.
https://news.yahoo.com/evergrande-makes-overdue-interest-pay...
As someone that is financially versed, even I have trouble grasping the why this is a big deal. Complicated things don't get run.
Whereas J&J factory problems, that sounds like a covid thing and it's easy to see why that might be important.
It's important to watch but the ripple effects on this look to be small and likely to be contained in China.
But your right, it hasn't hit major media in any form.
Maybe the typical Economist readership cares more about this. I for one did not quite grok the importance or the implications, but it's been interesting to hear about.
https://twitter.com/SahilBloom/status/1439920043404546050
https://twitter.com/FabiusMercurius/status/14392189567791513...
https://twitter.com/INArteCarloDoss/status/14389444317349191...
https://www.nytimes.com/2021/11/10/business/evergrande-bond-...
"China Evergrande meets a Wednesday payment deadline for two of its bonds."
On multiple levels, too.
"It was not immediately clear whether it had made payment on the third bond, which matures in 2024, or if all of the investors in the other two bonds had received payment."
So basically they MIGHT have made payments on 2 of the 3 bonds. How is this being treated as anything other than a default? Is the financial press just afraid of upsetting China here?
BlackRock is the biggest foreign owner of Evergrande bonds.
Next there are Vanguard, and a few other equally big Western funds.
https://www.reuters.com/business/finance/blackrock-hsbc-amon...
It says: "BlackRock, HSBC among largest buyers of Evergrande debt"
Those are relatively recent purchases and they were tiny re BlackRock -
"BlackRock added 31.3 million notes of Evergrande's debt between January and August 2021, pushing its stake in the company to 1% of the assets in its $1.7 billion Asian High Yield Bond Fund, according to Morningstar."
1% of $1.7 billion, or $17 million.
That's equal to 1/100th of 1% of BlackRock's assets. And they've got $9+ trillion under management.
BlackRock has taken a hit on their equity in Evergrande, which is already largely toast:
"The data also shows that BlackRock, the world’s largest asset manager, has suffered a $95.3m book loss on its Evergrande holding, which at the start of the year stood at just over $111m."
https://www.fnlondon.com/articles/blackrock-vanguard-shareho...
The Financial Times in late September estimated BlackRock's total exposure to Evergrande at $400 million. At their scale they can take a $250-$400 million loss and shrug it off. Evergrande represents a several hundred billion dollar problem for China domestically, and that's before you get to the cascade risk for their property market (which represents 65-70% of all household assets in China).
1% of a BlackRock fund is a megaton of money.
Remember, LTCM went down after a few percent sell-off turning into an avalanche.
And yes, this below is very appropriate.
also the vast majority of blackrock's holdings are unleveraged equity
https://www.forexlive.com/news/!/evergrande-met-todays-bond-...
The title on Google News is "Evergrande Met Today's Bond Payment Deadline" but if you click to the article the headline changes to "Evergrande met at least part of today's bond payment deadline".
What is going on here?
However in this case it seems that a bondholder has explicitly stated that they have not been paid by the deadline https://twitter.com/dhthakur745/status/1458499174026997760?s...
Which means that, if true, Evergrande have now defaulted.
Instead, its a quite bizarr negotiation process- local investors first, then citizens (to prevent a riot) - then if anything is left, the international investors.
If that is the full approach, then a massive retreat of investment out of china is to be expected.
A couple of articles I read suggested that if Evergrande defaults on one bond it can trigger instant defaults on others.
> This means that if a single one of these bonds defaults, all 23 outstanding bonds automatically have ‘default’ status
https://apnews.com/press-release/pr-newswire/business-china-...
Evergrande bondholders say they have not received $148m interest payments https://www.ft.com/content/88dcb535-3945-4138-b394-dda82292b...
Basically, selective default by Evergrande. Full official default likely very soon, and for most of the Chinese real estate companies.
加速加速加速 更快看到结局
International Investors like BlackRock will take a massive bath.
Pressure on tech and other industries in China: Xi Jing Ping will officially be a dictator, come party congress 2022. Tech and real estate are industries owned by the oligarchs of Shanghai faction, which is against Xi Jing Ping.
Even more societal lockdowns: In the last few months, there were silencing of a #metoo incident, scrubbing of a famous actress from internet, removing discussions of evergrande bankruptcy, and disappearing/reapperance of alibaba's ceo. Look for more of these.
No war attempt on Taiwan in the near future: between real estate collapse, economic decline, coal shortage, food shortage, inflation, huge debts, and covid waves/lockdowns, CCP won't have any appetite.
Suicidal war attempt on Taiwan: CCP may get desperate when riots broke out, or need a victory to focus its citizen's outrage elsewhere. Then they'll face the combined forces of western countries, and will have to suffer through economic sanctions.
Probably posturing, but hard to imagine he wouldn't at least impose sanctions.
Will this be the Chinese version of Japan's real-estate crash of the '90s...?
They're currently reversing out of the college cram school thing. There's some sort of similarity here.
If we are lucky? Otherwise, it could be much worse than that. Vancouver, the Bay Area, and LA got hit hard by Japan's real estate crash, I wonder if history will repeat?
Haha, trying to buy an apartment in Shenzhen? I can't say the sentiment here is much different amongst young people.
Furthermore, it seems to me that saying a company has defaulted is a pretty serious statement that would constitute libel if not appropriately checked. And so even with a few unofficial reports of bond holders not getting paid, it would be irresponsible to prematurely declare a default.
The facts that have been reported certainly don't look good, but it's also the press's modus operandi to sensationalize.
If they can't pay that, what can they pay on their 300B in other debts?
Other news sources indicate they don't have money coming in, possibly NONE, the real estate market in China is getting cold... and they have unfinished projects that they already collected money on that require money to complete.
When you have 0 liquid dollars then $148 million is more than you have.
So now one has to wonder why essentially every major journalistic entity involved in the financial space would bet their reputation on hearsay, for something with such limited effects; especially when it would only buy a few weeks, at most, of this false belief.
b) Their reputations are already unimportant in important circles; see a)
c) A few weeks is enough time to comfortably check even a complex portfolio and exit positions with exposure
The thing is investing in China a foreigner is a complete dice roll where you have no real power and no visibility into what you are investing in.
They are, but the foundation is rickety. Xi is a dictator. That increases the odds of catastrophic failure. Were an economic collapse to become protracted, it's not hard to imagine separatist movements and competing power sectors turning to violence as a political tool.
To me, they seem to be building on top of a more modern infrastructure base and do not have the super-prevalent NIMBY problems that exist in the West.
Economically, sure. (Those always struck me as sour grapes or a fundamental misunderstanding of how debt works in a centrally-planned economy.)
Politically, however, the CCP had intraparty competition that avoided the sort of rot that felled the Soviets. It also kept the Party thinking long term. Hong Kong and Taiwan are good examples of Xi's impatience. Absent intervention, Hong Kong would have uncontroversially folded into China in 2047. The combination of China's military and economic prowess, then, could have encouraged peaceful unification with Taiwan. But Xi was impatient. He wanted it in his lifetime. So he rushed Hong Kong and screwed up not only Taiwan, but relations with all his neighbors, from the Philippines to India.
Dictators like to style themselves as monarchs. But monarchy has a continuity that dictatorships don't. That makes them more impatient and more unstable, particularly at the transfer of power.
There are also economic problems in China that Evergrande has brought to the attention - the wild speculation in real estate that is concerning for the party to maintain control. As well with the tech crackdown recently. In broad brushes it points to some problems over there (manageable probably - but risks for control of the party).
How new the roads and houses are doesn't seem like the most relevant factor for future economic growth.
The US built modern infra for the time, then it stagnated.
Japan built modern infra for the time, then it stagnated.
The US and Japan otherwise took very divergent economic growth paths.
China could go either way, but the increasing central control is hardly without risk for future economic development. Miss a few big bets and you have less of a backup plan than a less-organized economy.
Countries that have never known democracy, or received democracy without ever truly fighting for it, don't really care much whether you're a dictator or not a dictator- that's all that they've known.
I'm not blaming anyone for the government model. Just staying that it comes with known risks, and one of those is economic depressions and power transitions becoming violent. The stakes are too high.
China may have eliminated the term limit (of 2x5 years), but Xi has only been president for 8 years. They still have a fresh memory of transferring power. Certainly the longer he's president, the scenario you outline becomes more likely... but not in 8 years.
Something I've found interesting about these kinds of theses (although I'm sure there's more to his) is that just believing that a company/country/whatever is going to be successful doesn't make it a good investment. It's all about the pricing of the asset and ultimately, for assets priced by a market mechanism, about what other people think. So a thesis for investing more in China could be "US is in decline and China will take its place faster/more fully than the market thinks."
Of course even if you don't have any special knowledge about China's future, the default position should still be to invest a part of your portfolio according to it's market weight, which in the FTSE All-World Index [1] is 3.9% currently.
[1]: https://research.ftserussell.com/Analytics/Factsheets/Home/D...
I feel like someone has mistaken 100 years for 10 years.
Here in the west we've just extended indefinite credit (13 years and counting). So it's a bit of a pivotal moment for the CCP imho. It might turn out they're more committed to markets than we are :)
China has basically been the single biggest driver of global growth over the past decade. Its highly overleveraged real estate market is a huge threat to its overall economy, and that has plenty of potential to create a massive knock-on.
https://www.reuters.com/article/us-economy-global-kemp-colum...
I think what Western observers are missing is that this was an intentional "let fail" in order to prevent this structural weakness from becoming too big of a problem.
China is basically euthanizing this industry because they perceive it as a structural weakness.
I think what you're missing is that China isn't even out of the first inning on this one.
Evergrande hasn't even failed yet. It's a slow-moving trainwreck and the contagion is only just starting to spread.
https://www.reuters.com/world/china/chinas-state-council-hel...
Until recently they were considered (by most people) to be a relatively safe bet, so why wouldn't there be a load of money in there...
I would suspect the Chinese government will backstop the banks and firms but force consolidation and punish some people publicly.
Where other than China would you go to buy massive positions (face valued) of bonds, with continued room for expansion of your position, in private deals that you could keep quiet?
Besides, the CCP's anti-crypto position doesn't matter here. We're talking about a company (Tether Holdings Limited, or a front for it) investing in bonds. No crypto involved.
In combination with high U.S. inflation, slow economic recovery in the aftermath COVID-19, labor shortage/great resignation/ supply chain challenges , there can be potentially large domino effects, however is hard for anyone to say how bad it can become, or will we be lucky.
Or have we moved on to something else?
It's not Lehman-like in that the company isn't a tangled octopus in the middle of the financial system. Lots of investors exposed to developing markets will get burned, but I don't think the knock-on effects will be huge.
A major housing market panic in China could create a lot of despair and unrest in China.
I really, really hope I'm wrong about that.
The dynamic in China is that the central government is overwhelmingly popular and the local governments are more derided.
What happens in China when public sentiment shifts is anyone's guess.
I don't really follow the minutia of today's politics in China, but my impression is that Xi has taken away power from the regions. If so, then this former route for change may have been blocked.
Now, given how many things in the US are at terribly inflated prices, especially housing that people need to live in, maybe in the long run it's a good thing. But between here and there it could be quite turbulent.
No, and it never was.
With Lehman, the banks stopped lending to Lehman and then to everyone else. In China, Beijing can let Evergrande default while compelling lending to peripheral players. Thise players know this. The market knows this. That makes contagion risk de minimis. (For Western central banks, the analogous policy tool is “extraordinary measures,” i.e. committing to buying everything in sight.)
Keep in mind that Evergrande is defaulting because Beijing implemented debt limits. They’re wilfully deflating the bubble American policymakers ignored in ‘08. I’m a China hawk. But this whole episode is a show of strength for their system.
They've been using real estate as a place to stash everything bad for a while:
https://noahpinion.substack.com/p/what-if-xi-jinping-just-is...
The Fed was aware of the real estate bubble and tried to deflate it in 07-08. But it's hard to deflate a bubble gradually without triggering a catastrophic downturn.
The Fed played a huge role in triggering the recession. They intended to deflate the housing bubble, but didn't realize it would cause several banks to implode and risk the entire financial system.
The real failure of the Fed was being way too tight monetarily after the crisis started though.
https://fred.stlouisfed.org/series/BOGMBASE
I’m not an economist but that graph looks unhealthy.
The Fed has been much more on point this time around than it was in 2008.
Imagine there are EU/US banks that have loaned money to Evergrande or any related domino that may fall.
I imagine a loan from a bank is listed as an asset for the bank because they are charging interest monthly and it produces income for the bank. Now they don't have that income because the company isn't paying. It now moves to the liability part of the balance sheet.
One of the elements of the 2008 crisis was mortgage backed securities, bundling of mortgages sold as a security. What if these banks have done the same thing with Commercial mortgages/bonds? How many derivatives are based on these loans/bonds Evergrande isn't paying on? Zero, then likely no "contagion". Many? maybe they are isolated to China?
I think its likely an onion that is peeling back its layers and we don't know the full impact until its done.
https://asia.nikkei.com/Spotlight/Society/China-s-largest-gh...
Wade Shepard, author of Ghost Cities of China:
> Today, China’s so-called ghost cities that were so prevalently showcased in 2013 and 2014 (...) have filled up to the point of being functioning, normal cities
I would be really, really skeptical of post-2012 reporting on China. I understand why people are increasingly anti-China (the Uyghur stuff is disgusting) but you really don't get close to a neutral perspective from most of the Western media.
Or even closer to Beijing in Tianjin's new financial district. Actually, the tallest building in China is an incomplete sky scraper in Tianjin (https://en.wikipedia.org/wiki/Goldin_Finance_117), which hasn't had any work done on it since 2015 or so (similar to North Korea's Ryugyong Hotel).
> but you really don't get close to a neutral perspective from most of the Western media.
If anything considering my 9 years living in Beijing, western media holds off on a lot of crazy things that happen in China. No one would actually believe the reality, they would think it was all made up (e.g. the incomplete sky scraper in Tianjin).
> You can go visit Kangbashi (Ordos's new distrcit) today (well, when China opens again) if you want to see a ghost city. Kangbashi will fill up as soon as coal becomes popular in China again, which is probably never.
If you read the article I posted, Kangbashi is specifically the district under discussion - it is no longer empty, actively building new apartments due to demand.
Coal didn't become popular again, but they moved the top schools of the province into the area.
Every time I've visited Tianjin, I've seen a derelict half built sky scraper. The first time I visited was in 1999. What is up with that city?
> There are tons of unfinished projects scattered throughout the West.
In the USA? There are none, not sky scrapers. Maybe that half built Huawei facility in Wisconsin?
> I actually was just next to a massive one (not in the US but in Europe)
Great! Eastern or Western Europe?
> If you read the article I posted, Kangbashi is specifically the district under discussion - it is no longer empty, actively building new apartments due to demand.
Kangbashi was originally specced for a few million people. It has...maybe a hundred thousand now? The streets are still pretty empty compared to the rest of Urban Ordos.
> Coal didn't become popular again, but they moved the top schools of the province into the area.
They moved one top school to the area. Will it be enough? Can you make a city by relocating a few middle school and university campuses? That only gives you so much growth.
There's pros and cons to either system, but so far, the demand has largely arrived. The ghost cities of 2010 are now bustling metropolises. The ghost cities of 2020... Are on track to become bustling metropolises.
China has added ~500 million people to its cities over the past 50 years. 'Build in anticipation of demand' seems like a sensible approach to this sort of thing.
Speculators blocking new building is also a problem.
Everyone needs housing, but when owning a house means it has a speculative resale value, you have to pay that premium in order to buy one.
This has a few consequences:
1. Downpayments and mortgages grow, because you aren't just buying shelter, you are buying a financial instrument with a significant resale value.
2. Your financial well-being is now deeply entwined in the fate of the housing and mortgage market. Higher interest rates become horrible for you, as they depress housing prices, and put your home underwater. New construction is horrible to you, as it reduces the value of the speculative portion of your purchase. Likewise for the existence of affordable forms of housing, and renter-friendly legislature.
Speculation from the perspective of a developer is part of running a business. They shoulder a fair amount of financial risk when they choose to develop, and obviously want to hedge it. Speculation as a 'every homeowner in the country is also a speculator, whether they want to be one or not' leads to some questionable outcomes.
2. yes, people should be expected to pay the time discounted expected future value of the thing in order to own the thing. speculation is what prevents people from buying shitty houses for dirt cheap in areas that are ideal for apartment development and then refusing to move - that is a good thing.
2 -> Yes agreed, it is bad how it distorts the incentives and when the people on one side of the transaction (usually the homeowners) have all or most of the political power, that becomes a large problem.
The reality is that we have to have a mechanism to encourage people to sell their homes and move when more valuable uses become available (like moving in 30 people into an apartment building where there were previously
Speculation, in the United States, is that mechanism. There are probably alternatives (as a sketch: devolving eminent domain authority to local govt & non-profits -> obtain financing for compensating owners -> eminent domain-ify vacant lots/unused parking lots -> build housing -> sell housing -> pay back creditors; this would probably do a ton), but currently speculation & financialization is the best engine for resource allocation in the US.
That really isn't true. Kangbashi (a district of Ordos in Inner Mongolia) is still pretty empty for the amount of infrastructure they've built. They "lowered" their population target and claimed success, and are trying to get people to move there by putting in a good school, but you can still go there to see empty boulevards.
Likewise, China's tallest building is an incomplete skyscraper in Tianjin that hasn't had any work done on it since 2015. Tianjin also overbuilt on a new financial district that no one is really interested in.
Many of these overbuilt buildings are never going to be lived in before they are torn down. They just aren't in very convenient locations (e.g. not enough jobs to sustain those areas and no one wants to commute in traffic to where their are jobs).
I wonder how will WFH affect it though. Even with cultural resistance, WFH long-term seems inevitable on so many levels.
Paying off the current payment doesn’t deal with the remaining $300B debt that they need to service. It just kicks the can down the road a few days.
Good luck finding a multi-billionaire that’s going to swoop in and make $148M payments on a regularly recurring basis for the next decade.
Seriously misleading title though. A default is a well-defined event. “Defaults” implies that it has happened. “Teetering” is something else. Needs fixing.
It's ambiguous, but the title is a fair conclusion.
Bonus points for that PDF using the phrase "great reset."
"Please use the original title, unless it is misleading or linkbait; don't editorialize."
https://www.ft.com/content/e0a447f9-b4c2-45dc-bfc8-755b284d1...
As to how you've jumped from "rich individuals don't want to pay corporate debts" to "government bailouts clearly work" I have no idea.
Evergrande is hardly unique or even the largest real estate company in China. There are a lot of large companies in serious debt trouble there now, it will cost the government lot more than $300B to bail out the sector.
That’s not the end of their debt obligations, just the first one to come due that they’re not able to pay. There are many more debt obligations behind this one, so paying off this obligation just kicks the can a few days down the road.
To pay off all the debt obligations, would likely be billions of dollars.
Glad I’ve been building a solid crypto portfolio, looking forward to cashing in the last few years gains to buy some houses on the cheap again after the economy implodes.
it's evident crypto is not a hedge against uncertainty or bad news, but rather is highly correlated with the stock market and overall US economy.
And before the strawmen start piling up - that doesn't mean all crypto is forever useless, but right now crypto it is absolutely over-invested in relative to liquidity.