China’s embattled developer Evergrande is on the brink of default. Here’s why it matters
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The world’s most indebted property developer has been scrambling to pay its suppliers, and warned investors twice in as many weeks that it could default on its debts.
On Tuesday, Evergrande said its property sales will likely continue to drop significantly in September after declining for months, making its cash flow situation even more dire.
The Chinese developer is so huge that the fallout from a potential failure could hurt not only the Chinese economy, but spread to markets beyond.
Banks have also responded to its deteriorating cash flow. Some in Hong Kong, including HSBC and Standard Chartered, have declined to extend new loans to buyers of two uncompleted Evergrande residential projects, said Reuters.
September 19, 2021 at 2:48 PM #446192soryangParticipant
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I don’t know who said it, someone who doesn’t have a bias like CNBC, but this debt laden developer in China doesn’t present the threat there that it presents to foreign markets. The Chinese are huge savers, their country has a large foreign currency reserve. Their government has the ability to offset any liquidity crisis. The real problem is that they as a US creditor could sell off a significant amount of their US debt holdings to raise liquidity, and thereby create a liquidity problem in the US by raising interest rates on US debt in international markets. This raises the most fearful prospect. They have such an indirect way of expressing their concern turning it into another “coming collapse of China story,” adding to the myth of China’s weakness in US minds. If something bad happens its because of Chinese debt not US debt. The “free money” ponzi scheme on Wall Street could be jeopardized.
September 19, 2021 at 6:28 PM #446209Ohio BarbarianModerator
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Because the Chinese government has taken the position that housing is a right for all Chinese citizens. They said they won’t allow the type of real estate speculation that has made housing unaffordable in the United States. They also said that if a few Chinese corporations had to be sacrificed in order to do that, so be it.
I have a feeling that’s the real reason for the Wall Street panic, all of them who anticipated a speculative Chinese real estate boom are shit out of luck.
Never let your morals stop you from doing the right thing.--Isaac Asimov
The United States is also a one-party state but, with typical American extravagance, they have two of them.--Julius Nyerere
September 19, 2021 at 8:01 PM #446217soryangParticipant
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The foundation of political instability in Hong Kong among the young was real estate speculation, and the entire real estate development industry being controlled by a small group of elites deliberately restricting the real estate market supply. The same problem exists in South Korea, causing discontent among young people who can’t afford to rent, form households, get married, have children, etc. In South Korea, the problem is compounded by the relatively small size of the country, and the population density in urban areas. I think among people under age forty, it is regarded as the most pressing public policy issue.
September 23, 2021 at 8:32 PM #446744gordyflParticipant
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I don’t know if that was after the government recognized Evergrande had a problem, or if it compounded the problems for Evergreen.
It sounds like a familiar story. They believed real estate would keep rising at its fast pace, so they borrowed as much money as they could (issued bonds). The real estate market cools off which they weren’t expecting.
China will protect their banking system before they help Evergrande. Then they’ll probably help people who bought homes that haven’t been built yet. Lastly, they’ll worry about Evergrande.
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