Bitcoin Forum

Lehman Brothers went bankrupt with passives of 619B. Evergrande, a Chinese firm with ties to the CCP has admitted an insurmountable debt and has recently hired the same lawyers that prepared Lehman´s case for bankruptcy. 128 banks and 121 societies have claims against the company. The shockwaves may be felt through China and all the Asian region. The direct impact is around 2% of Chinese PIB and may cause more collapses.

Evergrande is a Real State / Construction company which works mostly in China and owns its own bank.

https://www.theguardian.com/world/2021/sep/14/china-property-giant-evergrande-admits-debt-crisis-as-protesters-besiege-hq (https://www.theguardian.com/world/2021/sep/14/china-property-giant-evergrande-admits-debt-crisis-as-protesters-besiege-hq)

It's nowhere as bad as Lehman Brothers. In 2008 Lehman had over $600 billion in debt.
13 years later this is $300 billion.

Not saying it's not bad, just not to the scale that the Lehman situation was.

It also goes back to the fact that there is no such thing as 'too big to fail' no matter what country / culture you are dealing with.
Greed and poor management is universal.

-Dave

As far as I can see, this is a matter for China and their banks, and I really doubt that the whole company will collapse just like that, and that the Chinese authorities will not do anything. There is speculation that the company rejects, but if it cannot remain operational and repay the debts - I do not see what is the other logical option.


The company offers debt repayment over a multi-year period, but it is speculated that it could go bankrupt by the end of this year - unfortunately, as always in such situations, the highest price is paid by small investors. Yet this situation hasn’t arisen recently, so I’m a little surprised that the Chinese authorities have allowed (and I don’t believe they didn’t know what was going on) the whole thing to escalate to this point.

The good thing about Bitcoin is that the Chinese have practically banned it (trading&mining), so I don't believe that bad news from China can be used for a new FUD.

There are other differences too, Evergrande is deeply in debt without a crisis looming. I wonder what's the real value of the assets Evergrande has and how much were overvalued to get more loans to expand more, betting on their exposure being far worse than Lehman as it is nothing new in China for a lot of them to end with far more debts than their assets. Probably it will end without anything really happening, the government "restructuring" the company, splitting it into thousands of pieces, and then erase from history the ones left with no assets and just debts to the local governments and banks.


It's starting to happen more often, sometimes the fear of coming across something that is really not right but still being supported by top officials is keeping people from sending alarms, local politicians don't want anything bad to be discussed about anything in their province so they are more interested in silencing critics than fixing problems.  HNA went down (https://www.scmp.com/business/companies/article/3119973/hnas-woes-mount-three-listed-units-disclose-embezzlements-nearly?module=inline&pgtype=article) in an even worse way.

You can't compare this with Lehman Brothers, different time and country, but they have the option for bailout or to print more money, and I would say that ''...brink of bailout'' is more likely.
This is a big for China, because dominos will start to fall when one of their companies ends up like this, and I suspect this can all be staged so they can introduce their digital yuan in later stages.
I saw that people are starting to organize Evergrande related protests and communist dictator will not be happy with that part.
Real State and housing is one huge bubble ready to pop, but so is everything else today and next few months are going to be very interesting for Bitcoin and everything else.

This is also linked to the real estate market. Somehow, i keep hearing about this overheated real estate market in China akin to the Housing bubble which led to the 2008 crisis in USA. I have no love lost for China but at a time when the whole world is struggling, any sort of upheaval in the second largest economy of the world won't do any good to anyone. Especially in the backdrop of the pandemic and all the money printing that went on to support people and businesses out of job.

As far as a bailout is concerned, if the CCP judges that it is important enough to protect investor confidence, they'll do it without doubt. CCP has always supported businesses in one way or other. Most businesses in China are linked to the highest echelons of CCP so it is possible that they will bail it out before the shock can spread.

I love this quote from the article:


That's what other companies have said when they're in deep shit, although the excuse may vary and the company might blame short sellers for their dire financial position.  Either way, it's usually never the media or anybody else's fault when something like this happens--it's the corporation's.

I'm not on top of what's happening in China's real estate market, but it wouldn't shock me to learn that it's in a bubble.  Asset prices across the board have been inflated past all reasonable valuation methods for the last few years (including the stock market and maybe even crypto).  I'm not sure how this is going to affect the world, but it's probably not going to be good for China.  Can't say I'd be sad about that, because I'm not a fan of their government or their country in general--mostly because they're the source of most of the counterfeit goods in the world.  We'll see what happens.

China has been running hot for decades now, any normal country would know that the economic cycle of boom and bust is as natural as the sunrise and sunset. However the Chinese leadership refuse to accept the belt slackening and tightening of a well functioning capitalistic system - people borrow and spend too much, then credit tightens up and at least a mini recession has to happen. Unfortunately there is a weird concept of "losing face" or honor in their weird governmental system, a recession would show a sign of weakness and the CCP won't allow it. In such a governmental system it allows the rot to build up much worse as officials never want to be the one who takes the blame, so they cover it all up until the top leadership only hear about butterflies and roses. Due to the weird insular nature of the economy, it is unlikely that the true extent will be discovered until it is too late and possibly send the world into a shocking recession similar to 2008 subprime property crisis.

I think that theguardian.com newspaper exaggerates the impact of such news on the Chinese economy, and the problem is the delay in transferring real estate and other assets quickly enough and putting pressure on financial flows.

It is a temporary problem and I think it will be solved in a short period. Real estate exists, but no, there is not enough speed to sell these real estate, as it is not a debt crisis or debt instruments.

I also believe that the global economy has expanded greatly in the last year which makes the possibility of absorbing liquidity easy.

As far as I know, the reason behind the crash of Evergrande (and many other chinese business ventures, banks and businesses).

Involves CCP forcing CEO's like Jack Ma who founded & ran alibaba to step down. So they can be replaced with CCP loyalists who are simply inadequate to the task of successfully running a large enterprise.

There are many chinese capitalists who successfully found and run a large business venture in china. Who are forced to resign and step down. So that the chinese communist party can take over. That's the reason behind there being a long list of spectacular failures for large chinese businesses.

It is possible something similar is happening in the united states. Jeff Bezos may have been forced to resign from amazon. So that political special interests could seize control of it. Something similar may have been attempted with Elon Musk and tesla. Elon tweeted tesla would be guaranteed to fail without him as acting CEO.

There is considerably more political interference in the private sector today, than there was in years past.

Agreed CCP is definitely letting the shadow banks feel the heat as they have always assume CCP would bail them out. I'm curious if this is a part of the NWO plan. China has definitely been biding their time and collecting assets and US debt.

 I know that general Chinese populace has a pretty low settlement to the stock market as it's easy to manipulate.  The situation with Jack Ma  exacerbated this, although China's real estate bubble has been a systemic issue for years. I suspect the inconsistent  supply chains of commodities used to construct new homes disincentivized new investors which derailed the whole operation.

Well, at least it is not yet a bankruptcy at this point, although the future looks really grim for Evergrande. I'm now curious if strong ties with the CCP will save the company. Quite the contrary, it looks like the Chinese government is not keen on bailing it out. Perhaps this is just one way for the red government to absorb another giant company. The CCP might just let it fall freely and when it finally hit rock bottom it would take it in the name of saving its clients and its 1.4 million unfinished properties.

Can you expand on that?

I have searched the internet and I don't see anything. I am quite surprised and I can see many reasons for it not to be so, since the political system of the USA and the USA are essentially different, but maybe if you explain the theory we can still see the logic behind it.

This won't just affect the Chinese and Asian region but also the African regions since they might have some contracts in that place since China wants to expand it's influence in that region too. That's a lot of losses but I think that China will brush it off like a dust since they still have other companies out there.

The Chinese government will have to step up and save this mega-corporation from bankruptcy.
The comparisons between Evergrande and Leman Brothers are far-fetched.
The US government had to save Leman Brothers,but they were too late and the LB bankruptcy caused a financial domino effect over the US and global financial systems.That was a big mistake.
I'm not a fan of government intervention,but the "too big to fail" corporations will have to be saved before it's too late.We don't need another major financial and economic crisis,in times of high inflation and a pandemic.
 

Shower thought. Did China truly ban Bitcoin for more restrictive capital controls, because the government is expecting an economic crisis? OR it’s expecting to BRRRRR trillions of Yuan, and the CCP don’t want that extra cash to go to the Bitcoin market. 8)

I am reading today that Evergrande could seriously affect crypto markets because there are some connections with stablecoins like USDT Tether and USDC that have exposure to commercial papers,
even if they are not directly from Evergrande this could affect global markets of commercial papers.
Tether is holding billions of dollars in commercial papers and they are probably in top 10 holders for that, and USDC issuer Circle have 9% of assets in commercial papers.
This is much more serious than people think and shares of other Chinese property developers and banks continue falling.

https://i.imgur.com/IEZcXDR.png
https://cointelegraph.com/news/does-evergrande-s-300b-debt-crisis-pose-systemic-risk-to-crypto-industry

It seems that the Chinese have softened up a lot when things like this happen to them. I was somehow convinced that CP still keeps things under control and does not tolerate such incompetence, because how else to call such company management. Perhaps @Hydrogen is right when he says that capable people are being replaced by suitable political governance structures, which generally destroy everything they are involved in. This is not necessarily a problem of China alone, because the world is undoubtedly ruled by politically eligible people, not those with expertise and competencies.

If we remember George W. Bush who practically destroyed everything he touched in his life, and became the president of the most powerful country in the world, then it is clear to us how the world works - the last name is important, and which political party you belong to - everything else is irrelevant.

---

I would not speculate as to why they did it, but it is only important that they did it, and in fact did us a great service, because someone wanted to admit it or not, China has always been a hidden danger for Bitcoin - communist methods and human freedoms never could function together.

Do you truly believe that? It was a danger to the PRICE of Bitcoin, but Bitcoin was never in real danger from China. They banned it, but did it “die”? Can the CCP censor Bitcoin transactions after the “ban”? Never, and the Honey Badger don’t care. Plus communist methods is why Bitcoin should be used in China. 8)

The CCP is a weird party, even their policies are weird when compared to our western way of thinking, they allow private enterprise to grow, they fuel their growth with money, they somehow let them run wild with foreign investment, some other times they impose policies or dismantle them all altogether, it's hard to find a pattern in their views especially since there is a lot of competition between provinces and a lot of finances at the province level, not controlled directly by the party, and even in the party itself, there are different groups.
I don't think that in most cases is because of incompetence, probably the cause is greed or desire to show off with numbers in billions.

They also had a real estate bubble prior to 2008, they have a lot of companies going bankrupt especially in
nothing out of the ordinary if we go by numbers alone.

But unlike the US, they have a different array of weapons to deal with those, no western country can actually limit the movement of people or force them to relocate, they can seize properties, limit purchases or ownership, they have a lot more control over the market and they could stop the bubble from bursting by just stopping everything, freezing the entire sector.


If you haven't put on a tinfoil hat all your search will be in vain.


One hundred public execution of the traitors of the cultural revolution that are using cryptocurrencies to subvert the law and you will see the difference between not giving a damn about them and the real power of the CCP when it wants to do something about it.

The real estate business is one among the most important drivers of china's growth the world accounts for about 29 percent of the country's total financial transactions if evergrand goes bankrupt it be the most important test of China's economic system within the previous couple of years Investors fear evergrand bankruptcy could have an impression on other developers. China's banking industry could even be in danger but China a really powerful country, will drop everything by signing agreements with various companies.

Too big to fail is actually the contrary of what the reality is. When you grow too big then it is unexpected for you to keep going with just finances. Amazon or Apple or Tesla can keep on growing, why? Because they can sell stuff forever, specially Amazon and that is why I understand them growing bigger and bigger.

Obviously finance world is different, you could make as much money as you can from there, but eventually when you grow to a level where you have so much money, eventually the profits can't continue forever.

Let's assume that you make 2 billion dollars a year profit, if you keep doing that for 10 years people may consider you not great, they want you to make more and more, and eventually you go into more and more debt to build more and more real estates but eventually you will not find anyone to buy it, it is not a car, it is not a phone, it is a house, people tend to keep their houses and not buy many, most can't afford to, and certainly not in billions. This was basically expected to fail.

Didn't know that they're already in Africa, what are they doing down there? That's a pretty far continent and I gotta say that I am slightly impressed that they dare touch the continent because it has an untapped potential but you're right that this losses might not hurt them too much.

I believe you didn’t understand the real meaning/definition of “Too big to fail”. It is a description for a business that has grown too large, and has become very established in the system/economy that it’s failure will be disastrous to the system/economy. The CCP has not currently made an announcement of a bail out, but I believe it has no other solution. Newspapers say Evergrande is not too big too fail. “OK”. 8)

Although people mostly pay attention only to the price (which is logical because they are only interested in profit), China was a much bigger problem not only because of price manipulation, but also because there were those in the West (especially in the US) who thought that China has too much influence on mining, and that there is a lot of environmental pollution because they mainly use coal.

If none of these factors are present anymore, I think the overall picture that Bitcoin is controlled by China and its dirty industry will start to change. And as for censorship in China, I think they have brought it to the highest possible level, although any intelligent individual may try to be smarter than the system, but most are still afraid to oppose the government.

I believe we can both agree that because of the design decisions made by the Core developers, China can’t influence Bitcoin whether it has influence on mining or not. BIP-148/UASF proved this.


But Bitcoin is always there, always censorship-resistant, and always waiting to be used. That’s the point. 8)

When you live in a dictatorship that would destroy you and all of your family and can make you disappear in a day, you do not have the courage to go against the dictator or people around him. China can ban all of crypto world, not just mining but everything related to crypto, even owning it, if they want to.

However, I do not think that it would be beneficial for them since it would mean losing a lot of money in the nation and giving it to other nations. I still do not understand why they banned mining neither, after all they were mining and making a lot of money, that is beneficial for china but they banned it for some reason. All in all I am quite happy that china doesn't hold too much power, that would be something very scary.

Whether true or not, Bitcoin without China will always be fine. Several times we have been lied to about China's influence on Bitcoin, but in fact it is not at all and Bitcoin is free from manipulation of the Chinese system from the start. We shouldn't be fooled by the stuff about China's restrictions on Bitcoin policy. It's all based on the mainstream media deliberately making a fuss in the Bitcoin market. We are still in the distant current without Chinese interference.

This story is bad, and I think we still have to see the worst.

Apart from all the news you reported here, the thing is EVVE USD bonds are trading at 23/25 cents for a dollar falli further since last week.

Also I would say this is the worst time for the Party to have a bubble pop, right while raising the tension with Washington.

There's nothing to this, Bezos wasn't forced to resign. He resigned voluntarily to spend more time working on his other ventures, of which there are many but the biggest one is probably Blue Origin, his aerospace manufacturing and spaceflight company.  Other ventures Bezos is involved with that he expects to spend more time on are his ownership of the Washington Post and Day 1 Fund.  

Also, Bezos hasn't completely left the company, he's still the executive chairman, which means he will still be involved in the largest decisions at Amazon, he just won't be running the day to day as CEO.

Although it seems to you and me that there is a lot of money at stake, this is not really the case when it comes to China. I think that @stompix in some thread calculated how much was actually earned from crypto mining in China, which means block rewards and fees. You need to know that China's GDP is estimated to be as high as $14600.00 billion (https://tradingeconomics.com/china/gdp) by the end of this year, and that to them in financial terms all the earnings from cryptocurrencies in any sense mean almost nothing.

Wow, you remember things I've had to scratch my head a bit to see some foggy pictures, but yeah, I now remember making that comparison.


Of course, prices have changed so the number would be at around 16 billion now, if we assume all mining is done in China and that all the fees are net income, still 0.1% of the total GDP.  But that's a rought estimate, mines burn energy, that energy costs coal, which could be exported, (or in case of China not imported (https://www.bnnbloomberg.ca/goldman-almost-doubles-asia-coal-price-forecast-on-energy-crunch-1.1652387)), components are made by Taiwanese companies, and the chips are right now the most expensive part of a miner and so on and on. Besides, the coins mined are not owned by the CCP but by private miners, it's possible that Chinese miners haven't paid a dime in tax. Apple earning billions does not equal billions in tax in the government's coffers.

My memory still serves me very well, and I hope it stays that way ;)


I think it’s very important to dispel the myths that some still believe, and that is that China is suffering some significant financial damage because it said NO to Bitcoin or any other cryptocurrency, and the numbers are there to show us that’s exactly the case - $16 billion or 5 times more would not make any difference - nor would the conglomerate in question completely collapse, because China is too powerful to feel it as a significant blow.

I well remember the last crisis that began in 2008 and the years that followed, while the world was looking for straws of salvation, the Chinese went around the world buying everything that could be bought. Some EU countries remember very well who helped them when they asked the IMF for help.

We are going to have to see how things evolve, we need to remember that a bankruptcy of a company as big as this one can create a domino effect which is exactly what happened with Lehman Brothers, and many of those that were deeply involved in the crisis have been very honest and they claimed the world economy was close to come to a complete halt, so while the circumstances are different I would say the economy is even on a worse shape now than the state it had back then and this could begin a chain reaction of bankruptcies, so it is important to see how this is solved and that it does not have big repercussions to other industries and countries.

I have heard this news a few times now. The company's investors also held a protest in front of the company's headquarters.
The company's stock has also dropped about 10 times and shows no sign of stopping.
EverGrand also has many investments in different countries in the real estate sector. If they declare bankruptcy, it could lead to a real estate market crash in Asia.

Lehman Brothers case was way bigger, but this is still significant. Plus, that time the only bad thing was the stock market crashing, and Lehman Brothers filing for bankruptcy was a big part of it. This time there's Covid, and also a big race of economies between China and the US. So while it's not strong enough to trigger a major global crisis, I think it might shift the balance of power enough to reinstate the US dominance, right when China actually had a chance to become more prominent due to dealing with the pandemic very differently from the Western world. It can also still be a big deal in the Asian region overall, and it's a big part of our planet.

Look .. they can say what they want about Bitcoin, but never in the history of Bitcoin has anyone lost that amount of money... like they are doing in these crashes.  ::) MtGox was probably the biggest blow for Bitcoin users, when approximately 850 000 bitcoins belonging to customers and the company went missing and likely stolen, valued at more than $450 million at the time.

No Banks were bankrupted as a result of MtGox... but the Exchange went down and many other exchanges took a huge hit as a result of the price crash. (negative publicity)  ::)

Most of the people outside China won't really be affected by this, the people who would be affected are the ones with an investment there or people who do have some ties with the company, for that time being it's a news concerned with the Chinese economy and therefore I do think that we can let this news slide for a while.


Yeah because there is no such thing as banks in first place when we are talking about bitcoins, it's a 1-1 network and at the same time, people were able to recover if they did hold onto their coins for a lil bit longer.

Zerohedge posted this Evergrande timeline of events. Quite interesting how early the party seems to be aware of the problems:

https://talkimg.com/images/2023/05/16/blob59051f1bdf815f25.jpeg

https://twitter.com/zerohedge/status/1439654627675414536?s=21

The story would be the same again, either the government will have to bail them out to make sure people's deposits in the company as well as in the bank that they own can be repaid so ultimately taxpayers will have to bear the burden of all this by paying taxes and also taking hit of inflation, these big real estate firms in almost all the parts of the world are really going cash dry, especially due to COVID, there was a surge in construction material cost, which was supplemented by reduced demand for real estate has led to a great cash crunch for even the largest of the companies. Either government will bail them out or a corporate shark would take up the company for pennies to transform it. 

This is the problem. They know that the government will bail them out. That is the reason why they go for high-risk business. We all know what happened in 2008-09. Many of the banks went bankrupt, but the government bailed them out. And in a couple of years, the top officials were allotting them tens of millions of USD in annual bonus. Only the ordinary tax payer is losing here. Either the tax slabs will increase, or the purchasing power of the national currency will go down.. or in some cases, both will happen.

I was trading through the Lehmans failure and it was far larger because it was symptomatic and also with contagion effect.   AIG would have failed also, this was the backing for many other instruments or ETN assets which essentially are traded prices that actually are debt or IOU.  Multiple failures would have caused others to fail in simple terms.  
   What happens with Evergrande despite them having finance operations is the contractors go broke, its damage to the building industry I wouldnt doubt and outside of that private citizens who had some debt with Evergrande expecting payoff in housing or monetary value wont receive even half back I guess.  So its a deflationary effect but Im not sure it spreads like the way all banks are entwined to each other in the system known as fractional reserve etc.

China can, A. BRRR-print, and pump their economy with Yuan to stop the crash, OR B. Let the economy fix itself by leaving it alone, and let it be through a recession. For Bitcoin HODLers, we can, A. Relax, OR B. embrace another golden opportunity to buy the dip and HODL. 8)

A lot of other Chinese firms are beginning to fail - expect this to have some serious ramifications for the global markets. Some of these firms are state owned so it's something to consider, but crypto's already tanked a bit and it's probably going to get a whole lot worse.

To put Evergrande's liabilities into context, they're on the hook for 300 billion...

Lehman situation was not an individual situation, that is the biggest difference. This company is a huge one that is bankrupting and that is understandable because every company can bankrupt, even apple or amazon could bankrupt one day, however 2008 crisis was a lot bigger. I mean we have seen nations like Spain, Italy, Greece, Turkey and many Balkan nations get so much affected by that 2008 crisis that it is silly to realize it was just some bankers combining some bad mortgages with some good ones to sell some more stuff.

Imagine a world where some bankers used some money to sell bad house loans and that impacted half of Europe’s economy. THAT was a big one, this? This is just some construction company going bankrupt, it is expected when people can't afford to buy houses, what else were they expecting to begin with?

The effect from Evergrande is spreading and affecting the real estate market as well as the entire stock market in China. Sinic holdings Group, a real estate development company in China, has lost 87% of its stock value today.

https://i.imgur.com/BFwR4Ac.jpg

Then the Central Planner of China will have no other choice in this situation. The government will, BRRR-print Yuan into existence, and BAIL EVERY COMPANY OUT if they need it. OR, there won’t only be a great economic crisis, but there will also be the Great Resignation of a leader. The choice is his, Bail out or Resign.

I was watching CNBC yesterday and noticed one interesting interview that someone luckily posted on YT. This is a person who warned in 2012 of the Evergrande case, which at the time, according to his research, had a debt of only $12 billion. After that report, Andrew Left (Citron Research Founder) was banned from trading in Hong Kong, which shows how important it was for the Chinese to sweep everything under the rug, even though it was only a matter of time before a complete breakdown occurred.

https://i.imgur.com/rEXVsHg.png (https://www.youtube.com/watch?v=NWLb25U5lnA)
(click on picture to watch video)

I don't think the Chinese government will save this company because if they buy dollars it will devalue the yuan. This will greatly affect other sectors of China's economy. They ignored Evergrande's call for help in July.

So, Evergrande didn't pay the coupon on their debt due today, as expected.
Still, this is a problem for China, as the vast majority of this debt, exposure is onshore to china (roughly, 200 BLN out of 300).
Contagion abroad, if it will ever happen, will be slower than expected. I hope.

There have been many real estate companies in China that have severely reduced their stock prices. People are saving themselves before the Chinese government does something.
If China spends money to buy 300 billion dollars, surely the yuan will depreciate and affect other sectors of the economy.
Maybe they'll let the crash happen. According to data of Evergrande Group, assets are equal to 2% of China's GDP, and the country's real estate industry contributes 14% of total GDP.
The Chinese government and this group are meeting to discuss a solution. This is a tough choice, maybe they will take time.

Many people say the Evergrande case will end like the Lehman Brother case.  However, China's largest company has shown signs of bankruptcy with a default.  There are so many companies behind Evergrande that this sequence of problems will affect many of these companies.  China's economy will not be fine with such a large corporate default case, we often hear the term "too big to fail" and this is associated with the Evergrande case.  I hope this will not spread to become a severe global economic problem, so far the stock market in my country is red because of this issue and so is the crypto market today although it can't be directly linked but the current market trend is declining.

Exactly, those the very top know that they are so big that they can do whatever they want and that the government at the end is going to rescue them whether because they put the whole economy at risk or because they are their friends, however now the circumstances are completely different, if we see a similar crisis than the one that we saw in 2007, because the governments did nothing to try to avoid the same crisis from appearing again, I'm not so sure that they will be able to do the same as they are heavily indebted already precisely because of that crisis and the pandemic and this means that they are going to need to print a lot of money which will increase inflation even more and this will begin to affect heavily their citizens, which are unlikely to remain silent about this.

The CCP won’t save Evegrande, but it will make policy decisions to prevent Evergrande’s crash from spreading to other sectors of China’s economy. Or stop it from spreading to other companies in that sector. There will be capital injections from Bank of China, and lower Policy Rates. Everything will be OK next month. Buy the Dip, it’s an opportunity. 8)

I thought again, the Chinese government will save this company. Currently, Evergrande has paid a part interest to banks and shareholders. They raised money from the families of the group's employees. They seem to be very good at this.
Lehman Brothers Bank is a lesson from the US for China to decide to save Evergrande Groups. The consequences of letting a large economic group die will bring real collapse to the Chinese economy. It will take time and money to restore the world's second-largest economy.

For China, if there will truly be an “economic crash”, I believe it will be a “controlled crash”. I know we believe in decentralization as Bitcoiners, but the Chinese Central Planning also has its advantages.

Thats insane amount of money! How could so big firm with accountants, managers, CA's, lawyers working for them 24x7x365 can let this happen? I mean I am really startled with the fact that such big companies could go bankrupt even though they have peeps working all around. How did they not see this one coming in the first place?

Moreover if that company is such huge empire then what about the employees working for them? They could end up loosing their jobs i see!

There is no wonder though after you know how Kingfisher went bankrupt in the past putting SBI bank at high risk. There more banks who still given the loans to that company and today all of them got defaulted by the Vijay Mallya.

Terrific to see how these billionaires can be so stupid.

From what I've read (my local news portal (https://novac.jutarnji.hr/novac/aktualno/kp-kine-pustit-ce-najzaduzeniju-kompaniju-na-svijetu-da-propadne-treba-disciplinirati-ostale-15104123)), the real estate business seems to have been in crisis for some time when it comes to China - because the data says that there are currently as many as 90 million vacant apartments or houses in China, which is enough for comparison to accommodate the entire population of Germany or France. In other words, companies like Evergrande were building a lot more than they needed to, and now while it sounds incredible,  the Chinese are tearing down those same buildings. (https://www.youtube.com/watch?v=gn1egrjMoD8)

In addition, Evergrande did business in something that had nothing to do with real estate management (private wealth management), which is just an indication that they were greedy far beyond their means. The expected scenario is that the healthy parts of the company will be sold, while the rest will have to be taken care of by Chinese banks.

Banks such as HSBC, UBS... and investment fund BlackRock have joined in buying Evergrande's debts. This is the scenario as expected. They will buy to help avoid collapse, and next the Chinese government will take over this massive corporate reshuffle.
They need to avoid the breakdown from happening because otherwise the consequences will be enormous.

https://www.bloomberg.com/news/articles/2021-09-17/china-boosts-cash-addition-to-soothe-nerves-amid-evergrande-saga

And here it happens again, a wierd use of fiat to save your ass for once, China decided to pump in $14 Billion into the economy to avoid any liquidity squeezes in the market, this was sort of expected as these type of crisis generally spiral down to all your market, adding liquidity would act like a patchwork on the balloon which was about to burst, let's see if China can settle this turmoil before it becomes a pain for it. If it would have been some other country government would have directly bailed them out until now.

What would be the possible outcome and if it fails, what would be the consequences ? The impact would be huge but comparable to anything  yet happened ?

I still do not understand what the big deal is about this company bankrupting. I mean the things they built is still there, its finances that they spent that is gone and they are bankrupting because of that, however what they have left to the world is still there. It means that owners and investors of this company will lose, but everyone else in the world wins with this.

I suspect that the amount is large which is cause for concern in the finance world but not like there are tens of companies bankrupting like this, it is just one company and that is rarely ever a problem. I believe that we should just let it be and eventually it will be a mute point.

Do you really think that China will let property prices slide?

I doubt it. Especially with the centralized controls that they have been pursuing for a while now, I think that they will be quite active in bailing out this particular sector.

The cash injections are already coming at full swing and likely will increase in size to make sure that all creditors are paid.

It was highly expected that the government would interfere in the default case that occurred in Evergrande.  Even though the company has not completely gone bankrupt, this default condition will destabilize the country's financial system.  There are a lot of banks involved in this case.  In my country's experience, if there is one bank in a country with bad finances, this will attract many other banks.  Because banking conditions are the foundation of a country's financial system.  The amount of debt that has failed to be paid is very large, so the government will definitely intervene if it does not want a widespread impact on the country's economic stability.

The rumor has it.

The Chinese government may offer a bailout but that is still uncertain as the latest news we heard is that evergrande ask local government over the possible collapse.
Well we havent got a real accurate sources ... just the FUD around the crypto community which it has nothing to do except for the same investor putting money on crypto and on evergrande at once.

It ain't that simple.
The company was running basically on future promises at this point, everything that they were making was with debt money, and now they are unable to pay even for past debts so all the new projects they have been already given money for will not be able to be completed and there is nothing there, no property, no nothing.

Even if by miracle their assets will cover the debt this will not help people who depend on that money, imagine you have 1/3 of your revenue coming from a  company that goes bankrupt and you must wait in fear when the assets are liquidated to see if you manage to get your money back, but all this time you somehow have to stay afloat, especially with banks looking nervous at you when you're asking for another loan. There are hundreds of companies that depend on Evergrande, those whose only business or at least main income is based on them, then the direct employees 200k of them, and many many more.

You're basically extracting close to 2 million jobs from the economy, erase 300 billion and just because the sheet shows zero at the end you think everything is ok.
There is no winner in this situation, and there will never be one.

Anyhow: (https://www.aljazeera.com/economy/2021/9/22/chinas-evergrande-says-will-make-a-scheduled-payment)
Seems like the PBOC decided to intervene, not directly but enough to calm the markets.

The problem isn't inability of repayment, the problem is the inability of repaying at this point of time because the assets which the company holds aren't readily realizable and therefore Banks would have to classify the Company's debt as NPAs which would not only put Company into various sanctions but the Banks too will have to face consequences due to huge exposure in the company and obviously in such situations the retail investors would be paid at the last.

What you are saying is textbook stuff, In real-world economy is based on sentiments when a Publicly listed company this huge goes bankrupt, owners and investors see it as a barometer of the whole economy and feel that this could be just one of all the companies which are going to be bankrupt which leads to people and even institutions panic selling their positions leading to further erosion of wealth from the markets which lead to the unexpected closure of huge trading positions held by major trading firms and when all these are hit, they are unable to repay a debt to Banks which have huge exposures like 10-20% in these companies, so Banks are shaken and either need a bailout to sustain or an immediate capital infusion which becomes really difficult in these times because if the government does a bailout by printing more money, a crisis would be further aggrevated by Inflation. This creates a sort of Avalanche effect.

They are not really being stupid, what happens is that they know that they're going to be rescued and they are going to be given free money that they do not deserve, that is probably the best business that you can possibly make, create a company, lose a bunch of money and then be given a fortune so you do not go bankrupt, and even if that was not their intention this is what it is going to happen, and about how the company can get in such bad shape? It can be explained simply by the fact that companies are always trying to maximize their profits and as soon as something happens that doesn't go exactly as planned then they get in trouble.

The Evergrande bankruptcy case is something that makes us think that this type of investment is very risky. We who know how to invest in bitcoin and crypto prefer it precisely because of the transfer.
We will have to learn the causes of how this bankruptcy originated in order to learn when things are not going well.
It is sad because many families have been affected as well as other economic sectors.
When something bad happens in China, I say to myself: Oh! no, China again.

If they are weakening the yuan then its likely going to reverse gains made in the last year against the dollar (https://talkimg.com/images/2023/06/12/AfGuI.png) which means we should expect a stronger dollar for the moment I guess.   Also a default or fear of loss can mean less speculative movement away from the dollar, generally that all makes the market more bearish and likely to retract some.   I think overall we recognize all paper money is gradually losing money every year and consistently for decades now but there are spikes in volatility also in that process and this is one of those times most likely.  The central banks to aid liquidity do not solve the problem, they just hope to snuff out any evidence of the failure.

Yep I saw that video recently also and to his credit he didnt come on and say told you so.   His take was well this market is not open to my particular aggressive opinion.
   The pivotal fact was he wasn't just stating an opinion back then but offering active short selling like Burry with housing debt in 2007 (https://markets.businessinsider.com/news/stocks/big-short-michael-burry-scion-housing-market-bubble-gamestop-stock-2021-9), I presume he had investors coming to back his view.   China didnt like his stoking the fires to negative sentiment and views on this debt value, all China companies are essentially extensions of the state whether they realize or not they will find communism still exists in the majority.

In a capitalist market short selling is important and stops extreme failures, every short represents a future buy because they deliberately trade something they do not own.   In this case Evergrande shares (not debt) might be worth zero hence a very attractive short.   Most of it depends on government intervention, like USA in 2008 they can choose to prop it up directly or indirectly.

Only a little time before we will see a housing bubble with the bankruptcy of Evergrande, and some analysts says that it's probably much bigger than the 2008 bubble. I mean with all the ghost apartments and abandoned sky high infrastructure, there's going to be one that's bound to happen.

You can rest assured that ever if China is presented with two choices between letting something resolve itself or staging a huge power-grabbing intervention, they will take the latter every time.  The chinese party is obsessed with control, and they've turned their society into an Owellian nightmare that is only increasing the amount of control they exert over everyday life.

The Chinese government, the latter, has always been totalitarian. The truth was showing signs of maturity and partial support for market rules. But totalitarianism does not tolerate freedom, which began to break through in everything and everywhere. Therefore, the most anticipated turn of events is "tightening the screws", a decrease in freedoms, an increase in totalitarian methods in management. Well, as a result - the curtailment of the economic "miracle"

Honestly, in this case, I don't look at any relation between totalitarianism and the Evergrande problem. When this problem didn't handle by the government then this will cause the biggest multiplier effect for their country especially in the economic sector. If I compare, the scale of Evergrande's debt with my country's debt, the result is Evergrande's debt is bigger. So I conclude that this is not a simple problem that can be handle by Evergrande. When they default, this means they are in the trouble and have been the national issue. There are many banks affected by this case, but there is my curiosity which hasn't answer yet, Why did the government never warn the Evergrande about their debt? as we know their government is too authoritarian, so why this case never be touched by them?

A few decades back, China was under the iron curtain and the citizens were unware of the liberties being enjoyed by those in democratic nations. But along with economic prosperity, the communications with other countries also increased and as a result at least a section of the population started rebelling against the regime. Perhaps the events in Hong Kong (supported by the West) was the turning point. The regime realized that if they don't nip the rebellion in the bud, then it will end up in their own destruction.

Other real estate Chinese operators are defaulting on a daily Basis.
Evergande is of course the bigger of them all, but surely not the only one:


https://pbs.twimg.com/media/FBfeh-2XEAIjSuF?format=jpg&name=small

Brace yourself, more are coming.

When Leghan failed, it held many assets that were traded on various exchanges. There were fears that Lehan would try to sell these assets at fire-sale prices in order to prevent bankruptcy, and these fears caused these asset prices to decline by a decent amount compared to what is normal for those types of assets. This meant that other banks that had no direct relationship nor exposure to Lehan was taking losses because they were holding similar assets (that had no realistic increased chance of defaulting). This had a cascading effect of banks being unwilling to lend to each other, or to anyone else.

Evergrande on the other hand holds assets that are not routinely traded on exchanges -- its assets are primarily made up of housing projects they are working on building, and shares in various business ventures. The companies that Evergrande holds equity stakes in will likely see depressed stock prices in the near term, however, this is not a huge deal for those companies because most companies do not rely on equity financing for day-to-day operations.

The damage that Evergrande can do to the Chinese economy is through the money it owes to its suppliers. Evergrande is a major customer of, and creditor to each of its suppliers, and Evergrande's ability to quickly pay its suppliers will affect its suppliers' ability to provide services to other companies that are building housing in China. This may lead to other builders incurring cost overruns and delays in completing their various projects.

Lehan was interconnected to the economies of the US and most European economies. Evergrande is really only connected to the Chinese economy (even though it does owe money to overseas creditors). I would say that Lehman's $600 bn in debt is about the same percentage of the economies it was connected to in 2007/8 as to the $300 bn in debt Evergrande has compared to the size of the Chinese economy.

The CCP maintains tight control over information throughout China. If you look at why the markets crashed in March 2020, you would see this was largely caused by the panic caused by left-wing MSM (there is even a similar, although less strong argument regarding why the housing bubble popped in 2007/8). The CCP will not allow this kind of media-induced panic and will instruct banks that are effectively run by the state to continue lending to companies that probably should not be lent to by objective underwriting standards. This undeserved credit allows companies to avoid failure and to eventually be absorbed by other state-run businesses.

The above has resulted in the absence of bust periods but also means that many business failures are not widely known, and business leaders who took actions that would have lead to failures in the West have been allowed to remain in leadership positions in China. The situation with Evergrande is too big for the CCP to cover up as they have with other business failures. The CCP has made it clear that western creditors will be the first to see losses, although I believe that Chinese investors will see massive losses, which will lead to a major contradiction in the Chinese economy, hopefully enough for the CCP to lose legitimacy and/or power.

Nearly every major company in the world issues commercial paper. Evergrande's failure is not going to affect every company in China, and will not affect the majority of companies in Asia outside of China. It will probably not affect more than a handful of companies outside of Asia.

There has been speculation that tether holds commercial paper in Chinese companies. There was an article (https://www.bloomberg.com/news/features/2021-10-07/crypto-mystery-where-s-the-69-billion-backing-the-stablecoin-tether) that went into great detail about many things about tether that was published ~a week ago, that briefly mentioned that tether holds commercial paper in Chinese companies. No details were provided.

If Evergrande does fail, and the market believes that Tether has serious exposure (regardless of the truth to this), I would expect the price of bitcoin to initially spike as people sell tethers for bitcoin, but will over the medium term decline as people try to redeem tethers in mass. This topic alone is probably deserving of its own thread.

Everything is well and almost fully described, thanks! But there is another nuance. Deep penetration into the economics of the construction business and related! I, being in China, about 10 years ago, was surprised how much they build. This was explained to me by some kind of "agreement" or an internal project, when the state creates comfortable conditions for such a business, banks lend almost without restrictions, all this gave a strong impetus to the development and growth of related businesses - the production of building materials (concrete, brick, fittings, cable products , building mixtures and cement, etc.), and these are thousands of enterprises, millions of jobs, market development ...
They also said, but I cannot confirm that it is true that residential construction in China on such comfortable conditions was "allowed" if more than 95% of Chinese resources are used during the construction of the facility.
As a result, housing construction has become a mega-profitable and large-scale project in China. Now imagine what will happen if this one of the "prime movers of the economy" stops? Thousands of enterprises, due to lack of demand, and then financing from banks, will stop their production. Together with them - construction artels, where builders, plasterers, loaders, electricians, crane operators, ... The next link - tens of millions of unemployed. The next link is an increase in the load on local budgets for the maintenance of these tens of millions (and maybe much more), unemployed. Non-repayable loans, a drop in quotations ... Therefore, it is too early to talk about the consequences, not all processes have appeared yet ...

There are a lot of people in China who "invest" in housing, even if they don't live in the house/apartment (nor have renters). There are also many ghost cities (https://allthatsinteresting.com/chinese-ghost-cities) in China that are nearly entirely vacant, even though they have been fully built. I suspect building these vacant cities is at least part of how China has seen its economy grow so much in recent decades.

If confidence in real estate in China is sufficiently eroded, housing prices will fall, by a lot. In 2018, it was estimated that approximately a quarter of urban housing in China was unoccupied.

Completely agree with the commentary regarding "too big to fail".

I think that this sort of self delusion is actually permeating throughout the cryptospace as well, especially NFTs.

But yeah, the Evergrande situation is definitely not as significant as Lehman given that a) it's not as big and b) it's nowhere near as interconnected and complex as Lehman was (and most of the victims are retail investors more than other institutions).

Alot of the problem with Lehman was it got stuck with debt it had intended to trade.   They traded on leverage and when the music stopped, they got stuck holding onto what could easily be bad debts and nobody would touch them.   Hence bankruptcy protection and effectively the end of their live trading establishment, they became an empty husk drifting waiting to settle a book.   We all know mortgage debt is not to be played with as its easily 25 year term and worst case you might have to hold it that long, that is why I think they still there handing money from their assets and revenue onto their debtors and agreed payment programs.   Obviously their breached agreements but its considered far better then a total collapse.
   You can also consider Barclays the successor to Lehmans if you like, they picked up the majority of their operations as a whole as some of it was good after all.

China doesnt really operate open market discovery on bad debts I doubt, its probably all about the party line what deal happens.   I saw they were pulling down some long empty buildings as part of debt clearance, I guess the land can be reused.

I would say that construction in China is "a process for the sake of a process", but not for the sake of goals. It goes without saying that at some stage there were both investors and buyers. But actions must be judged by results. What's the bottom line in China? Millions of meters of ghostly real estate. Millions of meters of empty cities. Billions of debts from regional authorities. In the near future, there will be a massive bankruptcy of related industries and entire sectors of the economy, and the state does not want to help this or flood this crisis with money.

Exactly, I just wrote something similar in the other Evergrande thread.  Coincidentally, also in response to you.  The totalitarianism is exactly why the party can't tolerate a free Hong Kong or an independent Taiwan.  Having free societies of ethnically chinese inhabitants could inspire people to question the party's rule over mainland china, so it is imperative from the party's point of view to bring both Hong Kong and Taiwan to heel, and sooner rather than later.

While everyone was talking about the bankruptcy of construction companies in China, another event took place in China, which suggests that the country is waiting for changes, and apparently not for the better. So: just recently, China celebrated the 100th anniversary of the Chinese Communist Party. In honor of this, an approved list of .... "great spirits of the spiritual lineage of the Chinese communists" was released. No, you heard right! Exactly. Here is the link to the website of the Chinese Communist Party, check out http://cpc.people.com.cn/n1/2021/0929/c64387-32242664.html
Why do I consider this event "important" enough and that it will affect China, and most likely negatively. Let me explain - in all totalitarian regimes, with the deterioration of the situation inside the country, the only way to restrain the population from rebellion is a sharp increase in patriotic movements, ideology, etc. Read what "spirits" will now be at the head of the Chinese ideologues! the spirit of party building, the spirit of Soviet territories (!!!), the spirit of the anti-Japanese war, and others, no less patriotic. So very soon we will see the "whipping up of patriotism" in China, with all the consequences of totalitarian regimes

According to this article, it appears that Beijing might not bail out China Evergrande Group and other Chinese property developers. I reckon this is good. This is how real capitalism is supposed to be. I shake my head when people say they support capitalism, however, when everything begins to dump they expect a government bail out.



With Chinese high-yield issues experiencing their worst selloff in a decade, murmurs are growing that China is poised to blink and relent on its property tightening measures. That hope was shattered on Friday. At a news briefing, the People’s Bank of China broke its silence on China Evergrande Group and said financial risks posed by distressed property developer, which is on the brink of a $300 billion debt restructuring, is “controllable.” That is a code word for “no bailouts.” The central bank tossed the blame to Evergrande. “In recent years, the company failed to manage its business well and to operate prudently amid changing market conditions,” an official said. “Instead it blindly expanded and diversified.”

Source https://www.bloombergquint.com/gadfly/china-won-t-save-evergrande-to-prove-who-s-boss-to-its-reckless-developers

I think the goal of building up all those "ghost cities" in China was to ghoose their economic growth, to keep people employed, and to increase wealth of Chinese citizens (to keep them happy).

Ultimately, Chinese real estate prices became too hot, to the extent that the CCP was afraid households would become overburdened with debt when trying to buy real estate, so they tried to cool the market. It appears they have gone too far, as sales have been down by double digits YoY for two months in a row.

I guess how many people could actually buy a house? Realistically? It was obvious that nobody would be able to keep on buying house after house after house, so they would get one and that would be enough and the people who couldn't wouldn't and that would be the end of it.

If you keep on building houses after houses constantly, there will be a situation where you do not have any people that would be able to get that excess amount of houses you have. The idea to cool it down was good, but spreading would have been even better. China really just wanted to "look" good, and they are not, so while trying to look good they basically managed to show the world that their people can't even afford a house, that tells you how bad the situation there is.

@doomloop. Those properties in the ghost cities were not built because the people could buy them. Much of those construction projects in China were built because it helped increase the country’s GDP artificially. What we are presently witnessing is the cost of this unmaintainable scam.

That's what I am trying to understand. If nobody is buying it, and it is artificially increasing the GDP, that still doesn't help the people, that still doesn't help the ones that built it, that just increases GDP for a while in a fake manner, but the reality will be open eventually, which we are seeing right now. I mean did they really assumed they would avoid the consequences of their actions? That literally never happened in history of humanity before, would it suddenly start happening now?

Every bad move has a bad consequence and that is what we are seeing, it was obvious from the start. Even if people managed to buy a few, how many could have they bought? It was obvious that it was a failed move, and the result is exactly what is suppose to be.

Building buildings that remain unoccupied give jobs to the workers who are constructing the buildings. It gives profits to the various suppliers of the builder and employment to the suppliers' workers.

I might compare the Chinese building ghost cities as public works projects in the US in the 20th century. Although, unlike the US public works projects, it is unlikely that any Chinese citizen will ultimately use/occupy the ghost cities.

Also, unlike the US public works projects, private citizens own the end work products of these ghost cities, meaning there is the potential that real estate prices will collapse.

And I think the point is different!
1. Corruption. All these constructions were financed from the provincial budgets, under the auspices of the state program. As we know, corruption in the regions is simply flourishing. Now imagine a "pie" of hundreds of millions of dollars, from which you can tear off a significant portion. They write that the houses in these cities are ghosts, of very low quality, and it is impossible to live in them. Those. the construction was carried out according to the budget of high-quality housing, but in fact "sand cities" were built.
2. The fact that people were given jobs is good, but it is a by-product of corruption.
3. The investment attractiveness of housing, especially when the bubble is inflating, is always very high! People do not care what is actually being built there, the main thing is that the price is growing, which means that 1 yuan today will become 10 yuan in 1 year. Who would refuse such an investment?
4. Well, now there is such a situation - huge debts, a huge amount of illiquid housing, the shutdown of system enterprises and entire sectors of the economy ...

I am not certain how and who profits from the scam, however, we can assume that there is always someone who makes money in the scam. Also, this is very much similar to much of the projects in the cryptospace. Project owners will keep continuing the scam until unprofitable or caught by regulators.

Their last condition, the Chinese government took their assets to keep their project running.  Because if the project stalls, the impact will be much bigger and there will even be no more trust from consumers in their country.  The government also before this case came out had issued 3 red lines indicating the bad finances of the company, so it is natural for the government to take over easily for the sake of economic stability.