Wolfstreet Report – Evergrande – fiasco in the making?
Het Wolfstreet Report gaat deze week in op de ontwikkelingen rond het Chinese bouwconcern Evergrande, dat diep in de problemen zit.
China hasn’t bailed out its over-indebted property developers yet, to the shock of foreign investors who’d bought their dollar bonds. Could the forced deleveraging trigger a financial crisis?
Publicatie 12 september
Volledige transcriptie van dit Wolfstreet report
Property development has been a huge factor in China’s economic growth. It accounts for 28% of GDP. And much of it has been funded by debt, including dollar-debt, and much of it is now blowing up.
Foreign investors piled into the property sector over the years, buying hundreds of billions of dollars in bonds, including dollar bonds issued by China’s property developers. They bought those bonds because they liked those yields, in some cases over 10%, thinking that the Chinese government wouldn’t let those companies default, that it would bail out the bondholders as it bailed out so many bondholders before, and surely it would do it again, given how crucial the funding of the property sector is to the Chinese economy.
And now just about everything has gone wrong for these foreign investors. For months, there has been a massive crackdown by Chinese authorities on liquidity-driven inflows into the housing sector.
Authorities cracked down on overleveraged property developers. They targeted mortgage approvals and interest rates for first-time buyers. They tamped down on rental growth. They pushed banks to reduce their lending to homebuyers. A national property tax has been put on the table.
And this was topped off with an increasingly strained relationship between the Chinese government and the United States government, that includes major steps by the US government to crack down on speculation by Chinese entities in the US stock markets.
China’s crackdown on property speculation is guided by the official mantra that “housing is for living, not for speculation.”
That massive amount of speculation and leverage has for years posed enormous risks to financial stability. And the government is now trying to defuse those risks – and it looks like at the expense of foreign investors that have bought those hundreds of billions of dollars in bonds.
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