After spreading COV around the world, the Chinese Communists are on the verge of causing a market collapse. China hasn’t bailed out its over-leveraged property developers yet. The developers bought dollar bonds. It’s a shock to foreign investors because this deleveraging could trigger a financial crisis.
Property development has been a huge factor in China’s economic growth. It accounts for 28% of their GDP. And much of it has been funded by debt, including dollar-debt. Much of it is blowing up.
Foreign investors are heavily into it.
China has massively cracked down on property developers, saying a property is for living, not speculation. At the same time, the US government is cracking down on speculation by Chinese entities in the US stock markets.
It’s come to a head.
Evergrande Group, the second-largest property developer in China, and the property developer with the most debt in the world owes banks, shadow banks, other companies, investors, suppliers, contractors, and homebuyers $305 billion, according to Bloomberg.
It can’t sell a single dollar bond and hasn’t since January 2020. It warned it may default. China has not bailed them out.
The entire industry is in trouble but Evergrande has the most debt. The others will follow into default. Some have already.
China could end up with a financial crisis but some of the biggest losers are foreign investors that bought those bonds, and not Chinese banks; and for a financial crisis to happen it would have to sink China’s banking system.
That has implications for steelmakers like Cleveland Cliffs, which was marked 7.3% lower in pre-market trading Monday at $20.25 per share, as well as investment groups such as BlackRock, which fell 3.5% to $845.96 each, according to The Street.
It looks like the government is forcing a brutal deleveraging on the property sector to bring down risks and tamp down on rampant speculation and price increases. It looks like an effort to rebalance the economy away from property development.
A number of top analysts have said China’s government is likely to contain the problem and insulate the global economy, reports Business Insider.
On the other hand, UK Express reports that the world’s stock exchanges are getting nervous and fear a chain reaction across the globe. Financial analysts from Hong Kong said: “It could become China’s Lehman crisis.” The real estate giant Evergrande is in financial difficulties and warns the global public of “unprecedented problems”.
The investors would eat the costs and the CCP seems willing to take the risks of spillover into the broader economy and credit markets, Wolf writes.
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