Evergrande: The Beginning of China’s Economic Collapse?

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nemo
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Re: Evergrande: The Beginning of China’s Economic Collapse?

Post by nemo »

USA and UK share many of these grave problems.
Seems like maybe the changes that started with the pandemic are not yet resolved at all.
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Re: Evergrande: The Beginning of China’s Economic Collapse?

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Re: Evergrande: The Beginning of China’s Economic Collapse?

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nemo wrote:USA and UK share many of these grave problems.
Seems like maybe the changes that started with the pandemic are not yet resolved at all.
The USA nor the UK has no desire to reunify Taiwan and kill the ‘rebels’. Nor to create an exclusive zone based on some shoals. Property prices in both places have been pushed to sky high values by … Chinese overseas property buyers, not the locals who live there. The power grids of both countries are filled with private businesses who are happy to provide more (except in the Republic of Kalifornia), given the right conditions.

This collapse might pull the rug from the overseas Chinese buying up property in both the US and the UK, driving up prices and making it difficult for Americans and British to find affordable housing.

No one knows how deep the rabbit hole is. And maybe will never know.

Cracks in the dam wasn’t caused by the pandemic, nor was a shaky power grid, nor the magic line.

These are my opinions.
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Re: Evergrande: The Beginning of China’s Economic Collapse?

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The suspension of trade has been lifted. They have to pay on Saturday.
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Re: Evergrande: The Beginning of China’s Economic Collapse?

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China's property developers are believed to owe more than $5tn all up. It's a huge debt for the world's second biggest economy, which is already battling other headaches like the energy crisis and soaring raw material costs.

https://www.bbc.co.uk/news/business-58976991
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Re: Evergrande: The Beginning of China’s Economic Collapse?

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30% of gdp
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Re: Evergrande: The Beginning of China’s Economic Collapse?

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Third of Chinese developers could face debt problems as Evergrande contagion grows – report
Even if the embattled property giant manages to avoid default again, many other firms are heading the same way, warns S&P
Martin Farrer
Last modified on Thu 28 Oct 2021 08.39 BST

One third of China’s property developers will struggle to repay their debts in the next 12 months, according to a new report, as the sector reckons with increasingly serious headwinds from falling sales, restricted access to credit and a wider downturn.

Even if the embattled developer Evergrande manages to meet its latest debt repayment on Friday and head off a potentially disastrous default, analysts at the credit rating agency S&P warned that many other property companies could be heading towards bankruptcy.

The financial contagion sweeping through the sector represents a serious risk for China – and the global economy – as its investment and construction driven model of growth begins to creak under the strain of mind-boggling debts.

China has suffered housing market downturns before but this one is set to be “unusually intense”, S&P said.

Although Evergrande has emerged as the symbol of the debt-laden structure with liabilities of $300bn at home and abroad, the Chinese property sector as a whole owes an estimated $5 trillion, according to analysts at Nomura. That is one-third of the country’s entire GDP and roughly equivalent to the whole output of the Japanese economy, the world’s third largest.

Property companies must come up with $92bn as bond payments mature in the next year. This task has been made much more difficult because many were cut out of conventional borrowing channels after Xi Jinping’s “three red lines” crackdown on lending to the sector. Some have seen their credit-worthiness ratings cut to “B” or below, which denotes that the company is vulnerable.

“We believe that defaults will rise as firms enter a prolonged down cycle, amid heightened refinancing risk and steep maturity walls coming due this year and next,” S&P says in its report this week.

“In the most severe scenario, the liquidity of as much as one-third of rated Chinese developers will come under pressure. The entities most at risk are overwhelmingly rated ‘B-’ to ‘B+’. Over 50% of our rated portfolio of Chinese developers falls into this ratings category.”

The S&P analysts believe Evergrande is likely to default on its debt eventually. It met the deadline for its last major offshore bond repayment of $83.5m on 23 October, but only at the last minute and when it had used up a 30-day grace period after first missing the payment in September.
https://www.theguardian.com/world/2021/ ... ion-report
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Tommie
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Re: Evergrande: The Beginning of China’s Economic Collapse?

Post by Tommie »

Chinese property developers are now completely cut off from foreign funding. A "total meltdown in the credit market".
The industry, including its subcontractors, has accounted for nearly 30 percent of the Chinese economy. The real estate industry in China alone uses about 30 percent of the world's iron ore, and it is so large that if real estate investments had been a separate asset class, it would have been the world's largest, with more value than, for example, the U.S. fixed income market.
In other words, this is something to care about.
It started with Evergrande through the summer. But 85 per cent of the developers are high yields (high-yield bonds, most uncertain), and there the international capital market is now completely closed. With an interest rate on high-yield bonds of more than 26 per cent, they cannot borrow more from abroad.

What has happened this week is that the capital market has also unravelled for investment grade issuers in China, i.e. also for the best and largest that have high credit quality.

As of now, property sales on an annual basis are down more than 30 percent, which goes straight to cash flow. If it continues, more companies are going to the wall. The fact that several large real estate companies in China are going to the wall can have several serious consequences for the world economy – depending on how the Chinese authorities choose to tackle the problem.

Before the pandemic, China accounted for a third of the growth in the world economy. Real estate in China accounted for just under 30 percent of the Chinese economy. If China decides that the best solution is to hit hard and kill the unproductive part of the development in China where it builds empty homes, this will thus be felt on the world economy. The second channel for diversification is that a sharp fall in the real estate sector could affect global investment sentiment.
The problems are said to have begun when China decided to impose debt restrictions. They're not going to disappear anytime soon.

The interesting thing this time is that the problems on the credit side have been implemented by the Chinese authorities themselves by limiting how much debt the companies can have. That's the needle that's pierced the balloon. It started with them and I would guess they won't reverse this.

I'm sure they'll try a soft landing. But other countries have tried that before and not always managed. Where we are now, however, is a classic early stage for a sharp correction in the housing development sector.
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Re: Evergrande: The Beginning of China’s Economic Collapse?

Post by SternAAlbifrons »

Don't sweat, 'a bit of blood but nobody's going to die

Mystery of China's huge US dollar surplus baffles global markets
Straights Times, and elsewhere

HONG KONG (BLOOMBERG) - Unprecedented trade surpluses and record inflows into its bond market are giving China a stockpile of United States dollars unseen since the days when the "Asian savings glut" was blamed for keeping US interest rates excessively low and fueling the sub-prime mortgage crisis.

But unlike then, when China aggressively recycled its US dollar holdings into US Treasuries, China's giant pile of foreign exchange reserves are holding broadly stable. That means the US dollars are being funneled somewhere else, but exactly where is proving to be a bit of a mystery.

While some of that flood of greenbacks is ending up as deposits at Chinese banks, the large "errors and omissions" in the nation's balance of payments is muddying the picture. What is clear is that the dollars offer China an important cushion against any future shocks in the world economy, even as individual companies like China Evergrande Group struggle to repay their debts.

"It is exceedingly difficult to get a clear view of how China's current account surplus is recycled," said Mr Alvin Tan, head of Asia foreign exchange strategy at RBC Capital Markets in Hong Kong. Nonetheless, the dollars mean that "whatever China's economic challenges ahead, there is little danger of either a balance of payments or a foreign debt problem".

Foreign currency bank deposits are just shy of a record US$1 trillion (S$1.35 trillion) while the trade surplus in the first nine months of this year hit about US$440 billion compared with the 2015-2019 average of US$336 billion and last year's US$325 billion, according to Morgan Stanley estimates.

Some analysts argue that the booming current account has allowed China's policymakers to rein in massive amounts of debt and begin a long-awaited campaign to deleverage its troubled real estate sector this year. But that leaves a question as to whether America's demand for goods will keep up enough momentum to offset the effects of China's slower credit growth.

more
https://www.straitstimes.com/business/e ... al-markets

ps, Evergrande has been finding the money. from somewhere.

29 Oct 2021 Rueters — Developer China Evergrande Group has made an interest payment for an offshore bond before a grace period expired on Friday,

Evergrande Avoids Default With Second Bond Payment
https://www.nytimes.com › 2021/10/28 ›
3 days ago — The payment comes a week after the world's most indebted property developer narrowly avoided defaulting on another bond.
etc

No doubt that the property sector is in for a bit of a cyclical downturn/bloodbath tho'.
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Re: Evergrande: The Beginning of China’s Economic Collapse?

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Chinese authorities have a message for Hui Ka Yan, the founder of Evergrande: The buck stops with you.

Chinese authorities issued a directive for him to use his personal wealth to help pay off some of the sprawling property developer’s debt, Bloomberg reported. The order came after Evergrande missed a coupon payment for a dollar bond on Sept. 23.

Hui Ka Yan is worth an estimated $7.8B
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