3 ms·

Probably will work out too

toomuchtodo 5y ago
The Chinese government was the one who triggered this crisis (by their decision to not extend a financial accommodation), so it'll work out, but whom it works out best for is likely not going to be foreign investors. This is an orchestrated deleveraging of bad debt campaign. "That is why Chinese regulators have decided to have a showdown with creditors over Evergrande. By convincing lenders that they will no longer stand behind large Chinese borrowers, they are trying to transform the country’s financial system by making Chinese lenders more reluctant to fund nonproductive investment projects. These projects generate what Chinese leader Xi Jinping, in an important recent essay for Qiushi (the leading official theoretical journal of the Chinese Communist Party) disparaged as “fictional growth,” in contrast to the “genuine growth” he called for. [1]" [1] https://carnegieendowment.org/chinafinancialmarkets/85391 https://carnegieendowment.org/chinafinancialmarkets/85391 Further reading on China's "Three Red Lines" policy: https://www.ubs.com/global/en/asset-management/insights/china/2021/china-three-red-lines.html https://www.ubs.com/global/en/asset-management/insights/chin...
- AlexandrB 5y ago
  Feels like western markets have lots of "fictional growth" on the books lately. We'll see if/how that unwinds.
  - toomuchtodo 5y ago
    Sure, US equities are frothy but are backed by cashflows backed by a consumerist society in a mostly functioning democracy. China's real estate market are tulips more people collect than live in. https://www.google.com/search?q=china+real+estate+occupied+vs+empty https://www.google.com/search?q=china+real+estate+occupied+v...
    - nemothekid 5y ago
      >US equities are frothy but are backed by cashflows backed by a consumerist society in a mostly functioning democracy. "backed by" is doing a tremendous amount of work in that sentence. For some comparison, Evergrande is currently worth 2x GME.
      - toomuchtodo 5y ago
        > For some comparison, Evergrande is currently worth 2x GME. True! But GME is not a representation of Gamestop's enterprise value at the moment (and therefore, a poor analogy); GME is currently a representation of a microcosm of equity market participants attempting to determine if there "less than fundamental" mechanisms at play (derivative/index based shorts, etc) on the security.
toomuchtodo 5y ago
Following up, Evergrande will be broken apart and nationalized with foreign bondholders taking a haircut. https://asiamarkets.com/imminent-china-evergrande-deal-will-see-ccp-take-control/ https://asiamarkets.com/imminent-china-evergrande-deal-will-...

The Chinese government was the one who triggered this crisis (by their decision to not extend a financial accommodation), so it'll work out, but whom it works out best for is likely not going to be foreign investors. This is an orchestrated deleveraging of bad debt campaign. "That is why Chinese regulators have decided to have a showdown with creditors over Evergrande. By convincing lenders that they will no longer stand behind large Chinese borrowers, they are trying to transform the country’s financial system by making Chinese lenders more reluctant to fund nonproductive investment projects. These projects generate what Chinese leader Xi Jinping, in an important recent essay for Qiushi (the leading official theoretical journal of the Chinese Communist Party) disparaged as “fictional growth,” in contrast to the “genuine growth” he called for. [1]" [1] https://carnegieendowment.org/chinafinancialmarkets/85391 https://carnegieendowment.org/chinafinancialmarkets/85391 Further reading on China's "Three Red Lines" policy: https://www.ubs.com/global/en/asset-management/insights/china/2021/china-three-red-lines.html https://www.ubs.com/global/en/asset-management/insights/chin...

AlexandrB 5y ago
Feels like western markets have lots of "fictional growth" on the books lately. We'll see if/how that unwinds.
- toomuchtodo 5y ago
  Sure, US equities are frothy but are backed by cashflows backed by a consumerist society in a mostly functioning democracy. China's real estate market are tulips more people collect than live in. https://www.google.com/search?q=china+real+estate+occupied+vs+empty https://www.google.com/search?q=china+real+estate+occupied+v...
  - nemothekid 5y ago
    >US equities are frothy but are backed by cashflows backed by a consumerist society in a mostly functioning democracy. "backed by" is doing a tremendous amount of work in that sentence. For some comparison, Evergrande is currently worth 2x GME.
    - toomuchtodo 5y ago
      > For some comparison, Evergrande is currently worth 2x GME. True! But GME is not a representation of Gamestop's enterprise value at the moment (and therefore, a poor analogy); GME is currently a representation of a microcosm of equity market participants attempting to determine if there "less than fundamental" mechanisms at play (derivative/index based shorts, etc) on the security.

toomuchtodo 5y ago

Following up, Evergrande will be broken apart and nationalized with foreign bondholders taking a haircut. https://asiamarkets.com/imminent-china-evergrande-deal-will-see-ccp-take-control/ https://asiamarkets.com/imminent-china-evergrande-deal-will-...