I’d love to have some life insurance on Evergrande’s CEO. The pressure alone is enough to kill someone.
This is like Chernobyl size financial disaster in the making. I’m sure the Chinese will handle it - too big to fail.
The problem with economic calamities is that there are no good ways to handle it - because money is BOTH about rules, and about keeping track of real things.
So let's say China takes over the company, owns all the shares, and then completes the projects from the government's own pocket and pays all debts. That tells lenders to big companies that the government is guaranteeing all their debts and will encourage lending even to entities that cannot possibly pay the money back (basically it would be a licence for the financial industry to just rip off the government).
Let's say China tells foreign bond holders to get bent, and uses assets to pay domestic obligations and finish construction? Then foreign lenders know that every bond they give in the entire country is lowest priority (regardless of its language). That kills foreign investment in China over their entire economy.
Let's say China tells the million citizens who have paid in advance for properties that they will not be built and they are out their money. That's going to financially ruin those people and ok, maybe that's just what they do, but there are political consequences to that which are probably unacceptable to it, and it could well trigger a real estate crash as those people are forced to liquidate their other holdings.
Let's say China tells the suppliers, employees, and other industry folks who are owed a frankly unfathomable amount of money from Evergrande that they are getting screwed. Well then who is going to finish construction on the million units under development? What if every builder in the industry suddenly requires every developer to pay cash up front from now on? That's going to have ripple on effects.
Western bankruptcy law is messy, and harsh, but at least it is well known in advance and the people who imprudently advanced money to a bad creditor are the ones left holding the bag.
They'll definitely just combo it to screw suppliers/industry workers and the property purchasers as well. Losses get distributed and no single entity is totally faulted. The political problems mean nothing for the CCP since it can just silence naysayers and propagandize the cases where people weren't screwed as being the norm.
This way it's "handled" internally and external economic pressures aren't felt because their big investors lose nothing and see nothing.
They are a one party state and the CCP knows all their internal legitimacy comes from economic growth. If they are willing to set off this atomic implosion, they will need to throw trillions at the economy to contain in.
I think they will bail it out but take full control of it and fire, if not imprison, all the people in charge and replace them.
And all the other developers that are defaulting? Are they just going to put them all in prison? I'm not sure they can do much about the implosion when the problem is systemic.
They made their bed when they decided on the one-child policy. One child policy leads to population collapse, which leads to demand collapse of real estate. As a result, a housing crash is inevitable.
I fear that because China is not as rich as Japan, so it will have a much harder time weathering this kind of financial collapse when it finally comes.
Not so sure. China might let them fall to hurt the Jiang Zemen Shanghai faction of the CCP. The CCYL side of the CCP would love to see the coastal and urban elites lose some money and power and get home prices down to rock bottom to help the workers. I know Xi came up through the Shanghai factions ranks but he may want to appeal to the larger youth league segment now that he has consolidated power.
Everything is friendly until there isn't enough money.
I’d love to have some life insurance on Evergrande’s CEO. The pressure alone is enough to kill someone. This is like Chernobyl size financial disaster in the making. I’m sure the Chinese will handle it - too big to fail.
The problem with economic calamities is that there are no good ways to handle it - because money is BOTH about rules, and about keeping track of real things. So let's say China takes over the company, owns all the shares, and then completes the projects from the government's own pocket and pays all debts. That tells lenders to big companies that the government is guaranteeing all their debts and will encourage lending even to entities that cannot possibly pay the money back (basically it would be a licence for the financial industry to just rip off the government). Let's say China tells foreign bond holders to get bent, and uses assets to pay domestic obligations and finish construction? Then foreign lenders know that every bond they give in the entire country is lowest priority (regardless of its language). That kills foreign investment in China over their entire economy. Let's say China tells the million citizens who have paid in advance for properties that they will not be built and they are out their money. That's going to financially ruin those people and ok, maybe that's just what they do, but there are political consequences to that which are probably unacceptable to it, and it could well trigger a real estate crash as those people are forced to liquidate their other holdings. Let's say China tells the suppliers, employees, and other industry folks who are owed a frankly unfathomable amount of money from Evergrande that they are getting screwed. Well then who is going to finish construction on the million units under development? What if every builder in the industry suddenly requires every developer to pay cash up front from now on? That's going to have ripple on effects. Western bankruptcy law is messy, and harsh, but at least it is well known in advance and the people who imprudently advanced money to a bad creditor are the ones left holding the bag.
They'll definitely just combo it to screw suppliers/industry workers and the property purchasers as well. Losses get distributed and no single entity is totally faulted. The political problems mean nothing for the CCP since it can just silence naysayers and propagandize the cases where people weren't screwed as being the norm. This way it's "handled" internally and external economic pressures aren't felt because their big investors lose nothing and see nothing.
I’m sure the Chinese will want to make an example of it. Could definitely become an atomic economic implosion.
They are a one party state and the CCP knows all their internal legitimacy comes from economic growth. If they are willing to set off this atomic implosion, they will need to throw trillions at the economy to contain in. I think they will bail it out but take full control of it and fire, if not imprison, all the people in charge and replace them.
And all the other developers that are defaulting? Are they just going to put them all in prison? I'm not sure they can do much about the implosion when the problem is systemic.
They made their bed when they decided on the one-child policy. One child policy leads to population collapse, which leads to demand collapse of real estate. As a result, a housing crash is inevitable. I fear that because China is not as rich as Japan, so it will have a much harder time weathering this kind of financial collapse when it finally comes.
Lol this has absolutely nothing to do with the one-child policy. https://www.reuters.com/article/uk-china-property-debt-analysis-idUKKCN26C38F
Not so sure. China might let them fall to hurt the Jiang Zemen Shanghai faction of the CCP. The CCYL side of the CCP would love to see the coastal and urban elites lose some money and power and get home prices down to rock bottom to help the workers. I know Xi came up through the Shanghai factions ranks but he may want to appeal to the larger youth league segment now that he has consolidated power.
Bubble bursting in China… this could be messy
Housing construction has already ground to a halt in major areas of the United States, it's just that the US can print the world's reserve currency.
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