Thread: China"s property bubble may be about to burst

Evergrande isn't alone

China Evergrande’s debt problems aren’t an anomaly. Signs of stress are piling up in China’s real estate development sector, and more companies are signaling they may not be able to pay back their debt.

Driving the news: Fellow builder Modern Land asked its bondholders if it could delay a bond payment by three months, and Sinic said it will likely default next week, Reuters reports.

• That’s after Fantasia Holdings last week missed a payment altogether.

Why it matters: Widespread distress in the Chinese property market could bleed into other areas of its massive economy, as well as negatively impact the global markets for commodities and raw materials.

• Watch for a domino effect among the builders.
• Each company that acknowledges it can’t make debt payments makes it a little more palatable for others to join their ranks, Aayush Sonthalia, portfolio manager for emerging markets debt at PGIM Fixed Income, tells Axios.

State of play: Repayment is in doubt for any bonds issued by Chinese property developers that have lower credit ratings and an upcoming maturity, Sonthalia adds.

• One reason: Chinese banks have tightened their lending standards. If a company doesn’t pass the “three red lines” test, it may not be able to get money to refinance.
• On top of that, weak property sales data was just released. That's not a good sign for the developers’ ability to shore up their balance sheets.

The impact: The sell-off across the bond market has been broad. Even higher-quality investment-grade bonds backing Chinese developers are now trading in the 80 cents on the dollar area, Santhalia says.

What we're watching: The Chinese government's next move.

• "Our view is that by the end of this year, we're going to see some further loosening of monetary conditions and possibly some fiscal support as well. The economy is so dependent on the sector ... they don't want a complete collapse," Santhalia adds.

China's property sector stalked by Evergrande default fears as developer misses third deadline

Key points:

• Evergrande faces staggering debts of roughly $400 billion
• The firm missed its third round of bond payments on Monday as investors wait to be paid $200 million in coupon payments
• It will be formally declared in default if it doesn't meet its October 18-19 payment deadline

More HERE

Originally Posted by panama hat

Nope, definitely not

Mmm oddly hypnotic, of course the real worry is the ripple magnifies.
Maths explains the potential stored energy/liablity in even a small initial piece can magnify and bring down the house , see video.

Xi Jinping’s Evergrande dilemma has repercussions far beyond China


By Kevin Rudd



Subscribe to read | Financial Times

The writer, a former prime minister of Australia, is the global president of the Asia Society in New YorkSince coming to power, Chinese president Xi Jinping has had to deal with three overriding priorities. First, a domestic economy that is both slowing and increasingly unequal. Second, an adversarial geopolitical environment, resulting largely from Xi’s own quest to change the regional and global status quo. And, finally and most importantly, making sure he secures a third term at the Chinese Communist party’s key 20th Party Congress next year.

Enter Evergrande and its growing list of missed bond payments. This behemoth, with $300bn in leverage, lies at the centre of a property sector that represents 29 per cent of Chinese gross domestic product and is more than $5tn in debt. Some 41 per cent of the Chinese banking system’s assets are associated with the property sector, and 78 per cent of the invested wealth of urban Chinese is in housing. Given the millions of creditors, shareholders, bondholders and (unbuilt) apartment owners, Evergrande has become a problem for Xi politically, economically and globally.

On the domestic front, an increasingly redistributionist approach to economic policy means that neither billionaires nor housing market speculation are tolerated as they used to be. Moves to prop up Evergrande fit uneasily within Xi’s “common prosperity” campaign. Internationally, Xi wishes to avoid any perception of economic weakness or political distraction, let alone the idea that China could be heading towards a situation similar to that which crippled the US housing market during the 2008 financial crisis.

The Communist party has sought to enhance its domestic credibility by claiming that China has a more sophisticated system for dealing with crises, whether pandemic or economic, than the west.So what is China now likely to do? Beijing’s policy options are threefold: bankrupting Evergrande to send a message to the rest of the sector; propping it up because it is simply “too big to fail”; or facilitating an orderly distribution of assets.

Xi’s political instincts may well be to allow Evergrande to face the music. He sees all forms of speculative investment, particularly in property, in Marxist terms: namely as belonging to the “fictitious economy” which crowds out investment in the “real economy” of manufacturing, technology and infrastructure — sectors that will seal China’s global economic dominance. “Houses are for people to live in, not to speculate on,” he told the 19th Party Congress in 2017.This view is counterbalanced by an anxiety that allowing Evergrande to fail may trigger a cascading effect across not only the property sector but the banking institutions that currently finance its gargantuan levels of debt.

Fortunately, China has institutional experience in dealing with such crises. In 2018, the private insurance group Anbang was brought under state control and restructured after its collapse with more than $320bn in liabilities. The regional lending bank Baoshang was allowed to go bankrupt last year after racking up $32bn in debts; $26bn in public funds was used to help rescue creditors at an average repayment rate of under 60 per cent.Earlier this year, HNA — one of China’s largest global asset buyers with $77bn in debts — was taken over by state bankruptcy regulators and split into four separate entities. And most recently, Huarong, a state-owned asset manager with $15.9bn in losses, was partially bailed out by state-owned investor groups after its chair, Lai Xiaomin, was executed for corruption in January.

RecommendedFT News Briefing podcast10 min listenEvergrande’s troubles loom over global marketsBased on these precedents, the most likely outcome for Evergrande is an orderly distribution of assets to a mix of state and private buyers. This would ensure that people get the houses they have made a deposit for, creditors are paid, and domestic bondholders skate through with just a minor haircut, while international bondholders are likely to see a comparatively bigger loss.That may deal with the immediacy of the Evergrande problem. But if the party continues forcefully to deleverage the property and finance sectors, it could be just the beginning.

Already, we’ve seen another midsize real estate developer, Fantasia Holdings, fail to make a $206m bond payment. Yet another, Modern Land, has asked to defer a $250m payment. Evergrande’s failure could already be spreading.It would be difficult to replicate an orderly redistribution of assets across the entire property sector for every struggling firm.

If the sector significantly slows or contracts, the implications for overall economic growth would be serious. It comes on top of already declining levels of business confidence in China produced by Xi’s tightening of regulatory and ideological controls on the private sector — and his parallel pivot towards the state.The implications for the global economy from such a scenario are very real.

China represented 28 per cent of all global growth between 2013 and 2018 — twice that of the US. A significantly slowing Chinese property market would mean slower global growth, with a particular impact on commodities that service construction. This is why the world should have a profound interest in how Beijing handles the deleveraging of its property and finance sectors. It represents far more than a contest between Xi’s ideology and China’s economic reality.

Ta for link

Altho abrasive Rudd seemed so much brighter than Scomo, Gillard ,Latham, Abbot obviously , Dodgy Glad , Jo Bjeke , Hansen and even Turnbull, was he too smart arse for rural Okkers or has Kev decided he don't need teh aggro? It is hard to think of anyone more competent bar Curtin.Howard and Menzies were managers but hardly for the greater good.

Will Evergrande be determined too big to fail by the gov? I think it will so expect a bailout simular to what we saw the US gov do with GM and Chrysler.

Will be pricey as was the $85 billion US cost but although a short term negatve economic impact will not slow growth much.