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.
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.
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.