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IMO, not all that informed, This is the Chinese government picking winners and losers as it tries to deleverage itself from what it did in 2008. (As a side not

IMO, not all that informed, This is the Chinese government picking winners and losers as it tries to deleverage itself from what it did in 2008. (As a side note, China doesn't get enough credit for what it did in 2008 to stabilize the global markets. It and the US literally spent their way out of what could have been a very brutal global recession) Last year they bailed out HNA. Lots of chatter that HNA was bailed out because it had done some very high profile deals in the first world and China wanted to protect its reputation. https://www.bloomberg.com/opinion/articles/2018-01-24/hna-shuffle-heralds-start-of-the-great-china-bailout https://www.bloomberg.com/opinion/articles/2018-01-24/hna-sh... The good news for the world is that Chinese corporate debt isn't held that much outside of China, due to tge double whammy of 1) investors valuing their chance of payback on a default like sovereign debt(large haircuts, very little leverage to get any say in the proceedings) 2) investors valuing the chance of a default like a corporate bond( much higher than sovereign defaults). This means it has the worst of both worlds from a risk perspective but does pay a larger coupon. And if you are a distressed credit investor you have the same problem that is now an issue in most markets. You can be right about the default chances but the government could still swoop in and bail out the company making your fundamental analysis worthless. The Chinese debt market tanking isn't going to hurt markets in a first order way. What could cause grief would be a scenario like the mid =80's where Japan almost on a dime stopped spending money around the world and brought it all back home to help fight their recession. If China starts selling global assets, like housing in major cities around the world, and starts to decline their treasury holding rather than rolling them, then look out.

dajohnson89 8y ago
Don't they have large holdings of US treasury debt? Wouldn't a credit crunch in china pressure them to redeem their bonds, putting the US govt in a bind?
- free652 8y ago
  They can't redeem US securities, they have to wait for maturity or sell to a different entity.
  - amanaplanacanal 8y ago
    Which could lead to higher interest rates if done en masse, which would definitely affect the US economy.
    - AnthonyMouse 8y ago
      Assuming the Fed wants higher interest rates. Otherwise it can just buy them itself to keep interest rates in check.
      - fspeech 8y ago
        "Otherwise it can just buy them itself to keep interest rates in check." That would be no difference from "redeeming". Bond prices are determined by interest rates. When interest rate is the same as coupon rate the seller can sell for the face value of the bonds, equivalent to redeeming.
        AnthonyMouse 8y ago
        The difference is that the Fed pays the market rate, not the coupon rate, and by doing so at scale, the demand raises bond prices and reduces interest rates. This is the opposite of what they've been doing recently -- selling bonds they already hold. Which is why bond prices are down and interest rates are up compared to a year ago.
ThrustVectoring 8y ago
Chinese corporate debt isn't held much outside of China because of Chinese capital controls, too - domestic investors looking for returns are often constrained to domestic markets, thus bidding up prices and lowering returns. The same phenomenon explains in part the excessive real estate construction in China: there's often little other good places for domestic investors to park their money.
- cargo8 8y ago
  Is real estate still a "great investment" in China when you can't own property but merely buy 75 year leases? (this is my understanding of how real estate works at least in Shanghai)
  - vkou 8y ago
    Is real estate in America a great investment[1], when despite owning property, you have to pay 2% of its value in taxes/year? In a mere 50 years, the government will own your entire property! China's property is leased... But as a converse, it doesn't have any property taxes. At the end of the day, the difference between a fixed-term lease, and a property tax are largely academic. (With a bit of economic weirdness, close to the roll-over period of the lease.) [1] Which also begs the question - should real estate be a great investment? Nobody cheers when the price of staples and groceries goes up...
    - cabaalis 8y ago
      > Nobody cheers when the price of staples and groceries goes up... Except those who hold the groceries and staples? I'm no investment expert, but my understanding of the value of real estate is due to the scarcity (when taking into account the cost of improvement and demand.)
      - YokoZar 8y ago
        On the news you'll hear that the housing market has "recovered" and is now "healthy" when prices increase. When food and gas prices go up we don't say that. We worry. The narrative has been completely taken over by property owners.
hindsightbias 8y ago
In the 80's it was Japanese corporations that lost their shirts with US assets, but is housing a corporate or individual investment for Chinese? My understanding was Chinese millionaires were just trying to individually invest in western properties (and get wealth out of China). With their aging populations, it's unlikely dependence on US consumption can keep Japan, Europe and China going.
parasight 8y ago
> If China starts selling global assets, like housing in major cities around the world, and starts to decline their treasury holding rather than rolling them, then look out. Serious question, what would happen if they do this? Do you mean it could result in a decline of housing prices?

dajohnson89 8y ago

Don't they have large holdings of US treasury debt? Wouldn't a credit crunch in china pressure them to redeem their bonds, putting the US govt in a bind?

free652 8y ago
They can't redeem US securities, they have to wait for maturity or sell to a different entity.
- amanaplanacanal 8y ago
  Which could lead to higher interest rates if done en masse, which would definitely affect the US economy.
  - AnthonyMouse 8y ago
    Assuming the Fed wants higher interest rates. Otherwise it can just buy them itself to keep interest rates in check.
    - fspeech 8y ago
      "Otherwise it can just buy them itself to keep interest rates in check." That would be no difference from "redeeming". Bond prices are determined by interest rates. When interest rate is the same as coupon rate the seller can sell for the face value of the bonds, equivalent to redeeming.
      - AnthonyMouse 8y ago
        The difference is that the Fed pays the market rate, not the coupon rate, and by doing so at scale, the demand raises bond prices and reduces interest rates. This is the opposite of what they've been doing recently -- selling bonds they already hold. Which is why bond prices are down and interest rates are up compared to a year ago.

ThrustVectoring 8y ago

Chinese corporate debt isn't held much outside of China because of Chinese capital controls, too - domestic investors looking for returns are often constrained to domestic markets, thus bidding up prices and lowering returns. The same phenomenon explains in part the excessive real estate construction in China: there's often little other good places for domestic investors to park their money.

cargo8 8y ago
Is real estate still a "great investment" in China when you can't own property but merely buy 75 year leases? (this is my understanding of how real estate works at least in Shanghai)
- vkou 8y ago
  Is real estate in America a great investment[1], when despite owning property, you have to pay 2% of its value in taxes/year? In a mere 50 years, the government will own your entire property! China's property is leased... But as a converse, it doesn't have any property taxes. At the end of the day, the difference between a fixed-term lease, and a property tax are largely academic. (With a bit of economic weirdness, close to the roll-over period of the lease.) [1] Which also begs the question - should real estate be a great investment? Nobody cheers when the price of staples and groceries goes up...
  - cabaalis 8y ago
    > Nobody cheers when the price of staples and groceries goes up... Except those who hold the groceries and staples? I'm no investment expert, but my understanding of the value of real estate is due to the scarcity (when taking into account the cost of improvement and demand.)
    - YokoZar 8y ago
      On the news you'll hear that the housing market has "recovered" and is now "healthy" when prices increase. When food and gas prices go up we don't say that. We worry. The narrative has been completely taken over by property owners.

hindsightbias 8y ago

In the 80's it was Japanese corporations that lost their shirts with US assets, but is housing a corporate or individual investment for Chinese? My understanding was Chinese millionaires were just trying to individually invest in western properties (and get wealth out of China). With their aging populations, it's unlikely dependence on US consumption can keep Japan, Europe and China going.

parasight 8y ago

> If China starts selling global assets, like housing in major cities around the world, and starts to decline their treasury holding rather than rolling them, then look out. Serious question, what would happen if they do this? Do you mean it could result in a decline of housing prices?