Moody’s Cuts China Credit Outlook to Negative on Rising Debt

[stompix]

Moody’s Cuts China Credit Outlook to Negative on Rising Debt
https://www.bloomberg.com/news/articles/2023-12-05/moody-s-cuts-china-credit-outlook-to-negative-on-rising-debt?embedded-checkout=true

Statement from Moody:
https://ratings.moodys.com/ratings-news/412128

In light of China's government's consistently stated policy objective, over the medium term, Moody's expects its property sector to remain smaller in proportion to the entire economy than it was before the property correction that started in 2021. As a result, RLGs face a structural loss of land sales revenue, which accounted for 37% of their revenue (excluding transfers from the central government) in 2022. Regions that relied most heavily on land sales are unable to materially offset the loss in revenue from other sources and will face financial strain for the foreseeable future, in Moody's view. Loss of land sales revenue reduces the ability of RLGs to support LGFVs and other local SOEs, including some entities highly reliant on RLG funding. Moody's expects further evidence of crystallization of contingent liabilities to materialize, which means that financial support to RLGs and SOEs will be provided by the government and wider public sector.

Instances of LGFV and local SOE financing stress have increased in the past year, and in Moody's view, market financing will remain challenging for entities from provinces such as Yunnan and Guizhou, where domestic bond market spreads remain very wide. More generally, if RLG support is durably impaired, debt sustainability will be at risk for LGFVs and local SOEs with particularly high leverage and/or low revenue coverage of interest payments.

Moody's estimates that around one third of the amount of SOE debt outstanding – equal to about 40% of GDP – has interest coverage below 1, which generally indicates weak debt sustainability.

These developments include the central government's approval for RLG bond issuances of over RMB1.3 trillion between 1 October and 7 November 2023 for repayment of upcoming LGFV bond maturities for the weakest provinces; the central government's announcement of a planned RMB1.0 trillion special treasury bond issuance to fund RLG post disaster construction; and a RMB1.6 trillion increase in central government transfers to RLGs in 2022 compared to 2021, which partly but only temporarily offset the RMB2.0 trillion of lost land sales revenue.

TLDR
The real estate is so much in debt and local government rely so much on sales of land for those that is a vicious circle in which money has to be put in to keep a thing that just redistributes money around with a lot of inefficiency.

So the government has to bail out local governments and real estate constructors so they don't go bankrupt and end up bankrupting the govemermnt itself, that's why the public debt of China is somewhere between 250% and 300% depending on what statistics China itself publishes, but the money that kept funding this debt is not in danger as the real estate market cools so suddenly a ton of it becomes impossible to pay back.

Speaking of the BTC implications, this should make in theory a few chinese go from real estate investment to either gold or bitcoin but...there is a problem with the second one! ;)So don't get your hopes up on anything significant moving into BTC, unfortunately.

[1715241413]

1715241413

[Captain Corporate]

This has been the path they are on for a while now, I get that building magnificent things are great, they do have some of the most amazing structures made during the modern era, if you look all the things made after 2000+ you will see that China has some of the most astonishing structures ever, but that came with the cost of nearly bankrupting the nation, and everyone is paying for it. The logic is simple, why did they think that they are the only people who are using their money or credit on something like this? Did they think UK, France, Germany and most important USA was "incapable" of doing this? It was obvious from the start that it would hurt the people, because others are not doing it, so there must have been a reason for not doing it there, they should have looked why those nations are not doing it. Saudis are now doing it, but they are smart, first they get the money to do it, and then do not use too much debt, and not like they care about their people all that much, so they are building stuff with what they have, not debt for the future.

[umbara ardian]

The China government's trying to band-aid the problem with bailouts and bonds, but that's not going to fix the real issue. The real estate market is drowning in debt, and it's hooked on land sales that just can't last forever. This unsustainable model is a ticking time bomb for China's economy, and it could explode with consequences that ripple across the entire world.

But there's a tiny glimmer of hope in this darkness. The government has faced tough situations before, and maybe they can pull it off again. If they can figure out how to diversify local governments' income and wean them off land sales, they might just avert disaster.

[Haunebu]

Damn. I had no idea the situation was so dire there especially after seeing how some cities like Shenzhen, Beijing etc developed so much over the years. Their people are suffering because of their stupidity.

What makes this situation worse is the fact that their population is the 2nd highest in the world. Can't believe that their dumbass government is actually thinking of invading Taiwan in between all of this.

[Poker Player]

I don't know why, but it makes me think that in this thread, if you put "US" where it says "China", you would get a lot more responses.

This has been the path they are on for a while now, I get that building magnificent things are great, they do have some of the most amazing structures made during the modern era, if you look all the things made after 2000+ you will see that China has some of the most astonishing structures ever, but that came with the cost of nearly bankrupting the nation, and everyone is paying for it.

China has not suffered a real estate bubble burst as happened in 2008. As there was a global recession, it affected them only in the background, but they were still growing at almost double-digit GDP during the crisis years. They may need to suffer one to moderate real estate growth.

Can't believe that their dumbass government is actually thinking of invading Taiwan in between all of this.

Politicians often use things like that to cover up other problems.

[Fortify]

Moody’s Cuts China Credit Outlook to Negative on Rising Debt

TLDR
The real estate is so much in debt and local government rely so much on sales of land for those that is a vicious circle in which money has to be put in to keep a thing that just redistributes money around with a lot of inefficiency.

So the government has to bail out local governments and real estate constructors so they don't go bankrupt and end up bankrupting the govemermnt itself, that's why the public debt of China is somewhere between 250% and 300% depending on what statistics China itself publishes, but the money that kept funding this debt is not in danger as the real estate market cools so suddenly a ton of it becomes impossible to pay back.

Speaking of the BTC implications, this should make in theory a few chinese go from real estate investment to either gold or bitcoin but...there is a problem with the second one! ;)So don't get your hopes up on anything significant moving into BTC, unfortunately.

It has always been inevitable that China's economy would come back down again, it has had so much growth over such a long time that it has to slow down. The CCCP take the wrong approach though, as they are constantly trying to prop it up and defy a natural boom/bust cycle. A lot of excess can build up in boom years, which is often only trimmed back by a period of bust. The complexity of the "communist" market system will also make things harder to unravel because nobody likes reporting failure all throughout the chain. This can hide a lot of problems and make the eventual outcome much worse than necessary.

[The Sceptical Chymist]

This has been the path they are on for a while now, I get that building magnificent things are great, they do have some of the most amazing structures made during the modern era<snip>

I heard on some video somewhere about a "skyscraper index" that was partly humorous but partly true, and basically it meant that you can gauge how close to the top of a bull market any given country is by how many enormous buildings are being erected.  I think I heard about it in a reference to Saudi Arabia, though I could be mistaken.

I have a feeling the average Chinese person is going to flock to gold rather than bitcoin if they have a choice.  I'm still not clear on how legal or even popular bitcoin is in China, but I'd imagine the government has the same opinion about it as the US government does, i.e, that it's a threat to their power over their citizens.  Why gold ownership doesn't represent the same threat is beyond me, but whatever.

Interesting blurb, stompix.  Damned if I'd have ever known about China's situation had I not read it here--and the only reason I care just a little bit is that they've become such a super power in the world, and if shit hits the fan in China it could get splattered all over the globe.

[hugeblack]

What is strange is that our real estate sector is witnessing growth from the 2021 corrections, as the percentage of foreign ownership increased and hotel occupancy increased despite the country not hosting important events, but it seems to me that given the smallness of our market, we are not affected by real estate problems.
This topic encouraged me to search for details of what happened with Evergrande. It was making headlines, yet I did not attempt to research it in detail.

[stompix]

I don't know why, but it makes me think that in this thread, if you put "US" where it says "China", you would get a lot more responses.

Makes you think?
Like your not 101% sure?  Common!

This has been the path they are on for a while now, I get that building magnificent things are great, they do have some of the most amazing structures made during the modern era, if you look all the things made after 2000+ you will see that China has some of the most astonishing structures ever, but that came with the cost of nearly bankrupting the nation, and everyone is paying for it. The logic is simple, why did they think that they are the only people who are using their money or credit on something like this?

Happened in the soviet block and in the Warsaw pact also, huge projects, huge investment, to try to show the world what we can do with little economical background checks on feasibility, more propaganda that usefulness. But no matter how much money comes back, one thing is for sure, they all cost money, and China has been building all this on their own population debt, now, somebody is going to pay, and unfortunately for them, they can't print dollars.

I have a feeling the average Chinese person is going to flock to gold rather than bitcoin if they have a choice.  I'm still not clear on how legal or even popular bitcoin is in China, but I'd imagine the government has the same opinion about it as the US government does, i.e, that it's a threat to their power over their citizens.  Why gold ownership doesn't represent the same threat is beyond me, but whatever.

If we compare the steps the US has taken against bitcoin compared to China, well, there is no comparison. China is terrorized about capital flight, there is no way at any point in the future if the commies are still in power you're going to have the same freedom on purchasing Bitcoins as you do in the US.
As for Gold, it's pretty simple, when was the last time you were able to pay somebody or someone with gold?
Smuggle wealth out of the country?
[url-https://www.ladbible.com/news/man-found-with-2lbs-of-gold-up-his-bum-after-acting-suspiciously-20220423]Man Found With 2lbs Of Gold Up His Bum After
'Acting Suspiciously' At Airport[/url]
I find this a bit hard...and long...and painful to do compared to Bitcoin.

[avikz]

Speaking of the BTC implications, this should make in theory a few chinese go from real estate investment to either gold or bitcoin but...there is a problem with the second one! ;)So don't get your hopes up on anything significant moving into BTC, unfortunately.

I do not see this theory turning into reality. Criptocurrency investments are not really encouraged in China. So chances are that, gold will be preferred by the Chinese people. Honestly, when it comes to capital protection, Bitcoin is a bad choice.

Also I really do not want a whole lot of Chinese population to get into Bitcoin. With lot of Chinese people comes lot of Chinese hackers and a lot of Chinese exchanges. Not good for the ecosystem.