Evergrande situation

[PrimeNumber7]

Maybe I'm missing something, but to me it looks like a government bailout is pretty much possible, considering that China's GDP was around 102 trillion Yuan (16 trillion USD) in 2020, and estimated to be even higher this year.

I think this "Chinese Communist Party mouthpiece", the Global Times



should shut the f*ck up, and the Chinese government should deal with the situation.

It is not trivial for the Chinese government to bail out a company as big as Evergrande. The Chinese government cannot issue massive amounts of debt the same way the US government can, and the interest rate it needs to pay is almost twice that of what the US government pays.

Can you say a bit more on this? I'm not that good in economics to know such nuances. I just think that GDP roughly shows the size of an economy. And since China's estimated GDP for this year($16.6 trillion) is huge in comparison to Evergrande's debt, $310 billion, I thought the Chinese government could cope with the situation. But maybe it's not that simple.

Countries cannot trivially borrow their entire GDP.

I might compare China bailing out Evergrande as comparable to someone making $100k/year, with no savings and already in debt to the tune of around $77k, and needing to take out a $2k loan. A lender might approve the loan but might not give this borrower its best terms. This person's other lenders also might react negatively to this person taking on this additional debt and might start offering worse terms when the borrower goes to refinance their debt as it comes due.

If Evergrande were to get bailed out, the Chinese government would be implicitly guaranteeing the entire $310bn in debt that Evergrande has, and China's other creditors would act accordingly.

There are also political problems with bailing out Evergrande. If Evergande gets bailed out, the government will start to get blamed when Evergrande cannot deliver homes on time.

Also I think if bailed out, Evergrande has low chances of failing to deliver homes on time. But again, it's an opinion of dilettante in economics. So, if you have time please explain.

As far as I am aware, Evergrande not delivering their homes on time is in part being caused by poor market conditions, and not entirely because of poor management. If this is being caused by poor management, the Chinese government can replace Evergrande's managers, however, there is no guarantee the new managers can improve things enough.

Part of the reason why Evergrande has been struggling is that the Chinese government has taken steps to cool the housing market. The CCP wants to prevent the housing market from turning into a bubble that eventually pops, and having to deal with the associated social unrest to that happening. It is possible the Chinese government's actions have already damaged the housing market too much to prevent major declines in housing prices.

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[mindrust]

Stocks keep climbing up, crypto keep climbing up. As I suspected evergrande was just a nothing burger. $300 billion debt? Pff. Just print another trillion USD, USDT or CNY and it means nothing. Maybe we haven't seen its real potential impact on the markets. That's a possibility too but as the times goes by, the chances of a big crash is getting lower and lower.

[oHnK]

Stocks keep climbing up, crypto keep climbing up. As I suspected evergrande was just a nothing burger. $300 billion debt? Pff. Just print another trillion USD, USDT or CNY and it means nothing. Maybe we haven't seen its real potential impact on the markets. That's a possibility too but as the times goes by, the chances of a big crash is getting lower and lower.

Actually, if you look at the current conditions, we will not see a major economic crisis in the country because the government immediately backed up this problem and became a problem for the government.  But if you say by printing money, the problem is solved, I don't think that's the way to do it because it will cause another domino effect, namely big inflation.  The condition of their debt is already very large, even greater than the debt of my country as a whole, it is natural for people to be worried about the default conditions they are experiencing.

[mindrust]

Stocks keep climbing up, crypto keep climbing up. As I suspected evergrande was just a nothing burger. $300 billion debt? Pff. Just print another trillion USD, USDT or CNY and it means nothing. Maybe we haven't seen its real potential impact on the markets. That's a possibility too but as the times goes by, the chances of a big crash is getting lower and lower.

Actually, if you look at the current conditions, we will not see a major economic crisis in the country because the government immediately backed up this problem and became a problem for the government.  But if you say by printing money, the problem is solved, I don't think that's the way to do it because it will cause another domino effect, namely big inflation.  The condition of their debt is already very large, even greater than the debt of my country as a whole, it is natural for people to be worried about the default conditions they are experiencing.

Quite right. The thing is, nobody cares about the inflation neither. At least not now. Maybe they will care when a loaf of bread becomes $500. I don't know. So far it is not that bad. Maybe we are right at the beginning of the collapse. Nobody really knows. I guess we'll have to live and find out.

[Rasa nanas]

yes that's right, there is no point in making a FUD because bitcoin will definitely recover again.
it looks like this crisis is over because currently bitcoin is back on the positive trend path and will most likely break a new ATH this month. FUD will give a slight correction to the bitcoin price, but after that it will recover quickly because many people consider it an opportunity to get bitcoin at a cheaper price.

[Betwrong]

Can you say a bit more on this? I'm not that good in economics to know such nuances. I just think that GDP roughly shows the size of an economy. And since China's estimated GDP for this year($16.6 trillion) is huge in comparison to Evergrande's debt, $310 billion, I thought the Chinese government could cope with the situation. But maybe it's not that simple.

Countries cannot trivially borrow their entire GDP.

I might compare China bailing out Evergrande as comparable to someone making $100k/year, with no savings and already in debt to the tune of around $77k, and needing to take out a $2k loan. A lender might approve the loan but might not give this borrower its best terms. This person's other lenders also might react negatively to this person taking on this additional debt and might start offering worse terms when the borrower goes to refinance their debt as it comes due.

If Evergrande were to get bailed out, the Chinese government would be implicitly guaranteeing the entire $310bn in debt that Evergrande has, and China's other creditors would act accordingly.

I think I get it now, thank you for this great explanation! I think now I need only one clarification. In your example saying "already in debt to the tune of around $77k" did you mean that China's debt is expected to reach 69% of GDP by the end of 2021?

As far as I am aware, Evergrande not delivering their homes on time is in part being caused by poor market conditions, and not entirely because of poor management. If this is being caused by poor management, the Chinese government can replace Evergrande's managers, however, there is no guarantee the new managers can improve things enough.

Part of the reason why Evergrande has been struggling is that the Chinese government has taken steps to cool the housing market. The CCP wants to prevent the housing market from turning into a bubble that eventually pops, and having to deal with the associated social unrest to that happening. It is possible the Chinese government's actions have already damaged the housing market too much to prevent major declines in housing prices.

I think this shows that with a centrally planned economy government can harm its country even when having good intentions.

[oHnK]

Quite right. The thing is, nobody cares about the inflation neither. At least not now. Maybe they will care when a loaf of bread becomes $500. I don't know. So far it is not that bad. Maybe we are right at the beginning of the collapse. Nobody really knows. I guess we'll have to live and find out.

Yes, maybe people only realized when the price of the bread they bought had reached that value.  However, if we talk about the case of evergrade debt, then this is actually a regional case, on the other hand, because the debt value is very large and attracts their banking sector, even 128 banks are involved in their debt, then this is something that must be addressed properly because default conditions will result in  causing angry investors and the impact of rising unemployment and economic instability in the financial sector.  If the financial sector is unstable, it will very likely disrupt the liquidity of national payments.

[jaysabi]

I agree that the biggest problem of China is the local governments debt,not Evergrande.
However,I think that the central government of China and the PBOC have enough reserves to support the local governments to pay their debts,at least for a while.The reserves aren't that big,the huge crisis with come,when China runs out of it's foreign currency reserves.AFAIK,China owns lots of US government bonds.
They could sell the US bonds and get some cash in order to pay off the debts of the provinces.
The economic growth of China seems like a bubble that will pop some day.I'm sure that the new Great Depression will begin from China,not from the USA.

I do believe that we should not be considering China as a great power if they fail to keep growing with debt. I mean look at the situation they are in right now, it is obvious that they should be able to grow with the man power they have, and they still fail compared to places that have quarter the amount of people they have with so much more wealth. I believe CCP will eventually fail not because they are not good at finances, but because of human rights problems.

There are other smaller and poorer nations that keep on saying they are willing to work for cheaper and western nations started to listen to them as well which is looking like taking away jobs from China and moving to other smaller nations. This is the real reason why China is losing, because they grew big and everyone is hating how they are treating both their citizens and everyone else so they are looking for other nations.

Who is going to rise up in China when they have no access to information other than what the party allows them  to know and no weapons to fight with?  It's not like America where guns are readily available, let along military-style weapons.  The last time people rose up they got crushed in Tienanmen Square, and yet the people don't really even know this happened because references to it are illegal in China and it's been scrubbed from public knowledge.  Everything the party does now is to cut off dissent before it happens.  That's why Hong Kong and Taiwan are such threats to the party, having open societies of culturally similar people so close to them undermines the way the party runs things and gives people ideas about life being better without them.  That's why the party isn't willing to tolerate them being independent.  So, no, I don't think their track record on human rights is really going to inspire an uprising because people can't organize and don't have weapons.

[perryxi2]

I just read the news about the Evergrande Crisis. Stock markets, especially in Asia, are on high alert as Chinese real estate developer Evergrande faces the threat of a bust. debt.Evergrande Group, or Hengdai Group, is one of the largest real estate developers in China. This group is currently in the Global 500 list by Fortune magazine every year. However, in recent years, Evergrande has gradually fallen into debt because it constantly borrows to pay and compensate for its investment ambitions in many fields.

[PrimeNumber7]

Can you say a bit more on this? I'm not that good in economics to know such nuances. I just think that GDP roughly shows the size of an economy. And since China's estimated GDP for this year($16.6 trillion) is huge in comparison to Evergrande's debt, $310 billion, I thought the Chinese government could cope with the situation. But maybe it's not that simple.

Countries cannot trivially borrow their entire GDP.

I might compare China bailing out Evergrande as comparable to someone making $100k/year, with no savings and already in debt to the tune of around $77k, and needing to take out a $2k loan. A lender might approve the loan but might not give this borrower its best terms. This person's other lenders also might react negatively to this person taking on this additional debt and might start offering worse terms when the borrower goes to refinance their debt as it comes due.

If Evergrande were to get bailed out, the Chinese government would be implicitly guaranteeing the entire $310bn in debt that Evergrande has, and China's other creditors would act accordingly.

I think I get it now, thank you for this great explanation! I think now I need only one clarification. In your example saying "already in debt to the tune of around $77k" did you mean that China's debt is expected to reach 69% of GDP by the end of 2021?

Including debts of local governments, some of which is hidden from the public, there are some estimates that the debt to GDP ratio is somewhere in the range of 0.77.

To put China's ability to raise money via credit markets into perspective when compared to the liabilities they would be taking on in bailing out Evergrande, in late 2020, China raised US$6 billion via bond sales, and this was the most it had ever raised at once via dollar-denominated bonds and matched the amount it had raised the prior year. China was recently able to sell $4 billion in dollar-denominated bonds. It could probably sell more in bonds denominated in its local currency.

As far as I am aware, Evergrande not delivering their homes on time is in part being caused by poor market conditions, and not entirely because of poor management. If this is being caused by poor management, the Chinese government can replace Evergrande's managers, however, there is no guarantee the new managers can improve things enough.

Part of the reason why Evergrande has been struggling is that the Chinese government has taken steps to cool the housing market. The CCP wants to prevent the housing market from turning into a bubble that eventually pops, and having to deal with the associated social unrest to that happening. It is possible the Chinese government's actions have already damaged the housing market too much to prevent major declines in housing prices.

I think this shows that with a centrally planned economy government can harm its country even when having good intentions.

Centrally planned economies will always do far worse than a free market. This has repeatedly been shown to be the case. With that being said, small amounts of government regulation is not a bad thing, especially when it comes to preventing particular sectors from becoming overheated.

The Chinese economy has not had any "ebbs" in the natural "ebbs and flows" cycle of economies. As such, it is likely the Chinese economy is running vastly hotter than it should be if free-market economics were allowed. For example, state-owned banks were required to loan money to state-owned businesses at terms that would not normally be made by a bank using reasonable underwriting standards. This prevented mediocre businesses from failing or getting bought out by more successful businesses.

[tyz]

Stocks keep climbing up, crypto keep climbing up. As I suspected evergrande was just a nothing burger. $300 billion debt? Pff. Just print another trillion USD, USDT or CNY and it means nothing. Maybe we haven't seen its real potential impact on the markets. That's a possibility too but as the times goes by, the chances of a big crash is getting lower and lower.

300 billion USD is indeed not that much, especially when you consider that Evergrande also owns a lot of real estate that is available as a counterpart and therefore the actual debt ratio is much lower. But the problem is another one: Nobody knows which companies are in the debt swamp, too, and besides, many experts doubt that the 300 billion are all debts and that in reality there are much more, also due to the shadow banking system in China. I think the issue of Evergrade will keep us busy for some time, even though share prices are rising again and China stocks were upgraded by rating agencies yesterday.

[darewaller]

Including debts of local governments, some of which is hidden from the public, there are some estimates that the debt to GDP ratio is somewhere in the range of 0.77.

To put China's ability to raise money via credit markets into perspective when compared to the liabilities they would be taking on in bailing out Evergrande, in late 2020, China raised US$6 billion via bond sales, and this was the most it had ever raised at once via dollar-denominated bonds and matched the amount it had raised the prior year. China was recently able to sell $4 billion in dollar-denominated bonds. It could probably sell more in bonds denominated in its local currency.

China is in big debt not because they didn't manage their finances badly but mainly because they have debt unpaid to them as well, the biggest one is USA, they have so much money that USA needs to pay them but doesn't and that makes China become super broke because they are not getting the trillions they should be getting from USA.

This is an awesome move by USA if you consider it, they are using their biggest competition as a manufacturer and then making profit from it all over the world and then they say "here is a paper that says I owe you" and then get out, they are not actually giving the money itself, they are saying that "here takes this money that says I owe you money, when you want to buy something you can give this to other nations" and then other nations do take it as well but China can't cover inside stuff with it. It is really genius move.

[PrimeNumber7]

Including debts of local governments, some of which is hidden from the public, there are some estimates that the debt to GDP ratio is somewhere in the range of 0.77.

To put China's ability to raise money via credit markets into perspective when compared to the liabilities they would be taking on in bailing out Evergrande, in late 2020, China raised US$6 billion via bond sales, and this was the most it had ever raised at once via dollar-denominated bonds and matched the amount it had raised the prior year. China was recently able to sell $4 billion in dollar-denominated bonds. It could probably sell more in bonds denominated in its local currency.

China is in big debt not because they didn't manage their finances badly but mainly because they have debt unpaid to them as well, the biggest one is USA, they have so much money that USA needs to pay them but doesn't and that makes China become super broke because they are not getting the trillions they should be getting from USA.

This is an awesome move by USA if you consider it, they are using their biggest competition as a manufacturer and then making profit from it all over the world and then they say "here is a paper that says I owe you" and then get out, they are not actually giving the money itself, they are saying that "here takes this money that says I owe you money, when you want to buy something you can give this to other nations" and then other nations do take it as well but China can't cover inside stuff with it. It is really genius move.

I have been told this before by a conservative professor, and I used to believe it. I now think this is somewhat flawed reasoning.

Even though the US is ultimately paying for these manufactured goods with not-money, actual money is flowing to Chinese workers, and to the Chinese economy. These same jobs would otherwise be available elsewhere, including potentially in the United States. Some of these lost jobs will ultimately cost the US economy money on an ongoing basis, meaning we will have to continue borrowing from China in order to support some of these people who lost their jobs. This is all fine and dandy today, however, if tomorrow, China decides it no longer wishes to continue lending to the US, the government will no longer be able to support these people who lack the resources to provide for themselves.

The US has become to rely on China for manufactured goods. If China were to decide they no longer wanted to sell us these manufactured goods, the US would have problems and would be unable to acquire these goods. The US economy largely relies on these imports from China. The useful life of products the US imports from China is very short when compared to the useful life of goods the US exports to China. This allows China to potentially influence the US, and will give them an advantage in the event of a War. The fact that China is a major supplier of medicine such as antibiotics to the US makes the situation all that worse.

Some of the trade imbalance involves China buying up US property, such as real estate and shares of US-listed corporations. This allows China to exert influence on American companies, and local economies. Americans who own shares of Chinese companies have virtually no rights/influence over management.

[cabron]

Including debts of local governments, some of which is hidden from the public, there are some estimates that the debt to GDP ratio is somewhere in the range of 0.77.

To put China's ability to raise money via credit markets into perspective when compared to the liabilities they would be taking on in bailing out Evergrande, in late 2020, China raised US$6 billion via bond sales, and this was the most it had ever raised at once via dollar-denominated bonds and matched the amount it had raised the prior year. China was recently able to sell $4 billion in dollar-denominated bonds. It could probably sell more in bonds denominated in its local currency.

China is in big debt not because they didn't manage their finances badly but mainly because they have debt unpaid to them as well, the biggest one is USA, they have so much money that USA needs to pay them but doesn't and that makes China become super broke because they are not getting the trillions they should be getting from USA.

This is an awesome move by USA if you consider it, they are using their biggest competition as a manufacturer and then making profit from it all over the world and then they say "here is a paper that says I owe you" and then get out, they are not actually giving the money itself, they are saying that "here takes this money that says I owe you money, when you want to buy something you can give this to other nations" and then other nations do take it as well but China can't cover inside stuff with it. It is really genius move.

I have been told this before by a conservative professor, and I used to believe it. I now think this is somewhat flawed reasoning.

Even though the US is ultimately paying for these manufactured goods with not-money, actual money is flowing to Chinese workers, and to the Chinese economy. These same jobs would otherwise be available elsewhere, including potentially in the United States. Some of these lost jobs will ultimately cost the US economy money on an ongoing basis, meaning we will have to continue borrowing from China in order to support some of these people who lost their jobs. This is all fine and dandy today, however, if tomorrow, China decides it no longer wishes to continue lending to the US, the government will no longer be able to support these people who lack the resources to provide for themselves.

The US has become to rely on China for manufactured goods. If China were to decide they no longer wanted to sell us these manufactured goods, the US would have problems and would be unable to acquire these goods. The US economy largely relies on these imports from China. The useful life of products the US imports from China is very short when compared to the useful life of goods the US exports to China. This allows China to potentially influence the US, and will give them an advantage in the event of a War. The fact that China is a major supplier of medicine such as antibiotics to the US makes the situation all that worse.

Some of the trade imbalance involves China buying up US property, such as real estate and shares of US-listed corporations. This allows China to exert influence on American companies, and local economies. Americans who own shares of Chinese companies have virtually no rights/influence over management.

I think they already decided that. That is why the shipping containers piled up on the port of every country today particularly in US. Notice your grocery stores that it has empty shelves.

The Chinese government is also protecting itself and taking advantage of how much the US Government is printing USD and distributing it to people. Even if Americans have money but there is nothing to buy from stores because the supply chains are disrupted and it all started with EVER GIVEN ship blocking the Suez canal.

[Victorycoin]

China's economic activities and inevitably casts a shadow over the world economy evergrande overcomes its crisis, the event will also break the cycle of becoming america's financial and strategic rival on the path to becoming china's second largest economy in the world. Prices can have a negative impact on consumer spending and hurt the economy they added that in the short term, chinese policymakers have the means to reduce the impact of severe damage on the economy.

[oHnK]

China's economic activities and inevitably casts a shadow over the world economy evergrande overcomes its crisis, the event will also break the cycle of becoming america's financial and strategic rival on the path to becoming china's second largest economy in the world. Prices can have a negative impact on consumer spending and hurt the economy they added that in the short term, chinese policymakers have the means to reduce the impact of severe damage on the economy.

Their economic condition is definitely affected by the evergrande case, even if it does not rule out the possibility of dragging other countries because we understand how the bilateral relations that China has built with many countries from an economic point of view.  On the other hand, the US economy which was also sluggish until the publication of the Tappering off policy showed everyone that the world economy was not doing well at the moment.

[mindrust]

Stocks keep climbing up, crypto keep climbing up. As I suspected evergrande was just a nothing burger. $300 billion debt? Pff. Just print another trillion USD, USDT or CNY and it means nothing. Maybe we haven't seen its real potential impact on the markets. That's a possibility too but as the times goes by, the chances of a big crash is getting lower and lower.

As I expected, China bailed out Evergrande and saved it from a bailout. Maybe this is temporary but I know that they can't afford them going bankrupt because it would trigger something bigger. We'll see what will happen when the next bond payment arrives.

They'll probably bail them out again again. If they were going to let them go bankrupt, they would have done it this time but they couldn't do it.