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I don't think China will let the default occur. It would look terrible for them and IMO the government will do anything to save face. I would even go so far as

by Ajay-p 5y ago

I don't think China will let the default occur. It would look terrible for them and IMO the government will do anything to save face. I would even go so far as to say that there are many within the politburo who cannot conceive of a scenario in which China is ever in a negative light.

FooBarWidget 5y ago
As things are looking right now, China is going to let them default. I don't know why you focus so much on "saving face" or even think that they can't conceive a bad scenario. They aren't dumb cartoon villains. They've worried about the property market for years now and they talked multiple times in the past about countermeasures. Bailing out big companies is against socialism, and their new wave of policies lately have shown that they're still very much in support of socialism. They don't want to let big companies get away with bad behavior, because that will signal to other companies that as long as they get big enough, they can take unreasonable risks and someone else will clean up the mess for them. There's a reason why since 2012, they've put a lid on debt-fulled growth: because they're transitioning the economy to healthier growth, not just more growth. This is why China is now at ~6% growth instead of 8%. I think it's likely that they'll save suppliers, as well as normal citizen who as disadvantaged by the Evergrande default. In return, they'll screw over Evergrande's shareholders and investors. To the government, only the people matter.
- worrycue 5y ago
  There is a risk of contagion though. When Evergrande fails, they could drag down other companies with it, which in turn …
- lamontcg 5y ago
  You're omitting the actual socialist solution here which is to nationalize Evergrande. That does mean that shareholders take the maximum haircut, but the stock has already crashed and that is already baked in. The executives of Evergrande will also take the maximum haircut, so there's no moral hazard there. And Evergrande's balance sheet is massive and there's real value there, it isn't like its all worthless speculation and by nationalizing it the government likely stands to make a massive profit long-term by continuing operations. This won't be done under the American model where the government makes massive bailout loans to private corporations to keep them going and executives still survive. The question of what to do about Evergrande's debts is where it gets stick, but wiping the debt out via nationalization and maximal refusal of China to honor those debts is pretty unlikely. Because China is concerned about the "normal citizen" they can easily do the math and see how the contagion effect of that would destroy the financial system and land hardest on the "normal citizen", so they won't do that. They also don't want to make a decision with geopolitical implications and detonate the global financial system through cascading defaults. That isn't good for anyone and China would be blamed for it (and right after the pandemic that started in China this is one they'll certainly want to avoid). Due to moral hazard concerns they'll probably enforce some kind of haircut so everyone feels a bit of pain, but it won't look like a complete default.
  - fmajid 5y ago
    > The executives of Evergrande will also take the maximum haircut Or in the case of the CEO, a head cut most likely.
    - lamontcg 5y ago
      For executives don't they find a reason to throw them into a jail cell somewhere with several yards of rope someone accidentally left behind?
      - fmajid 5y ago
        The executives at the companies responsible for the melamine-tainted baby formula scandal were executed. So were others: https://www.reuters.com/article/us-china-huarong-lai-idUSKBN29Y1P2 https://www.reuters.com/article/us-china-huarong-lai-idUSKBN... https://www.abc.net.au/news/2009-08-07/chinese-executive-executed-over-corruption/1382770 https://www.abc.net.au/news/2009-08-07/chinese-executive-exe... When I see the Sacklers laughing all the way to the bank despite having probably caused more American deaths than Hitler, Tojo and Bin Laden combined, there is something to be said about the Chinese method.
toss1 5y ago
If they don't want to be seen in a negative light, they can start by freeing Tibet, the Uighurs, and Hong Kong, or at least take the jackboot a little bit off of their necks. Also stopping the expansionism in the South China Sea and ridiculous claims to own Taiwan.... IOW, if they can't conceive of it, they are pretty far removed from reality
- tut-urut-utut 5y ago
  I fail to imagine how any of the things you mentioned could be seen in a negative light by Chinese people. Why would the care about opinions of the people/states that already hate China and want it to fail? EDIT: positive → negative
  - toss1 5y ago
    >>I fail to imagine how any of the things you mentioned could be seen in a positive light by Chinese people. (not sure if you reversed the meaning here, assuming you intended to say that these things are seen in a positive light by the ppl) Since the Chinese people are kept in the dark on such things, and not trusted with knowledge of even recent history (e.g., Tienanmen massacre, Great Firewall, constant censorship), they cannot be said to have any view at all of the reality. That is different from having an actual positive view. >>Why would the care about opinions of the people/states that already hate China and want it to fail? This is a completely bogus and strawman argument. I, and everyone I know wants the Chinese, and all people, to succeed, and enjoy prosperous self-determination. Even if it is out of self-interest, e.g., avoiding the disastrous knock-on effects of China failing, no one wants China to fail. What people DO want is for the CCP to stop behaving as a herd of authoritarian despots at home and abroad. Wanting authoritarian despotism to stop is NOT the same thing as wanting failure. What is sad is the the CCP is so detached from reality that they cannot see that they could be very successful by stopping these behaviors. It is like they can't stop making the same mistakes as the 1958 Smash Sparrows/Four Pests campaign, thinking that they are improving things, but actually creating a disaster (famine in this case). Let's hope these disasters don't also kill 20 million people.
    - 5y ago
chasd00 5y ago
letting a somewhat private company fail may end up making the central authorities look good. They can then start the "look what capitalism did to you, we're in charge of your life now." propaganda machine.
- jiinga 5y ago
  Please. The CCP runs all these companies already.
  - FooBarWidget 5y ago
    That's not how China works. Maybe you're thinking about the Soviet model, but China hasn't followed that for 40 years now. I'm Chinese.

by Ajay-p 5y ago

FooBarWidget 5y ago

As things are looking right now, China is going to let them default. I don't know why you focus so much on "saving face" or even think that they can't conceive a bad scenario. They aren't dumb cartoon villains. They've worried about the property market for years now and they talked multiple times in the past about countermeasures. Bailing out big companies is against socialism, and their new wave of policies lately have shown that they're still very much in support of socialism. They don't want to let big companies get away with bad behavior, because that will signal to other companies that as long as they get big enough, they can take unreasonable risks and someone else will clean up the mess for them. There's a reason why since 2012, they've put a lid on debt-fulled growth: because they're transitioning the economy to healthier growth, not just more growth. This is why China is now at ~6% growth instead of 8%. I think it's likely that they'll save suppliers, as well as normal citizen who as disadvantaged by the Evergrande default. In return, they'll screw over Evergrande's shareholders and investors. To the government, only the people matter.

worrycue 5y ago
There is a risk of contagion though. When Evergrande fails, they could drag down other companies with it, which in turn …
lamontcg 5y ago
You're omitting the actual socialist solution here which is to nationalize Evergrande. That does mean that shareholders take the maximum haircut, but the stock has already crashed and that is already baked in. The executives of Evergrande will also take the maximum haircut, so there's no moral hazard there. And Evergrande's balance sheet is massive and there's real value there, it isn't like its all worthless speculation and by nationalizing it the government likely stands to make a massive profit long-term by continuing operations. This won't be done under the American model where the government makes massive bailout loans to private corporations to keep them going and executives still survive. The question of what to do about Evergrande's debts is where it gets stick, but wiping the debt out via nationalization and maximal refusal of China to honor those debts is pretty unlikely. Because China is concerned about the "normal citizen" they can easily do the math and see how the contagion effect of that would destroy the financial system and land hardest on the "normal citizen", so they won't do that. They also don't want to make a decision with geopolitical implications and detonate the global financial system through cascading defaults. That isn't good for anyone and China would be blamed for it (and right after the pandemic that started in China this is one they'll certainly want to avoid). Due to moral hazard concerns they'll probably enforce some kind of haircut so everyone feels a bit of pain, but it won't look like a complete default.
- fmajid 5y ago
  > The executives of Evergrande will also take the maximum haircut Or in the case of the CEO, a head cut most likely.
  - lamontcg 5y ago
    For executives don't they find a reason to throw them into a jail cell somewhere with several yards of rope someone accidentally left behind?
    - fmajid 5y ago
      The executives at the companies responsible for the melamine-tainted baby formula scandal were executed. So were others: https://www.reuters.com/article/us-china-huarong-lai-idUSKBN29Y1P2 https://www.reuters.com/article/us-china-huarong-lai-idUSKBN... https://www.abc.net.au/news/2009-08-07/chinese-executive-executed-over-corruption/1382770 https://www.abc.net.au/news/2009-08-07/chinese-executive-exe... When I see the Sacklers laughing all the way to the bank despite having probably caused more American deaths than Hitler, Tojo and Bin Laden combined, there is something to be said about the Chinese method.

toss1 5y ago

If they don't want to be seen in a negative light, they can start by freeing Tibet, the Uighurs, and Hong Kong, or at least take the jackboot a little bit off of their necks. Also stopping the expansionism in the South China Sea and ridiculous claims to own Taiwan.... IOW, if they can't conceive of it, they are pretty far removed from reality

tut-urut-utut 5y ago
I fail to imagine how any of the things you mentioned could be seen in a negative light by Chinese people. Why would the care about opinions of the people/states that already hate China and want it to fail? EDIT: positive → negative
- toss1 5y ago
  >>I fail to imagine how any of the things you mentioned could be seen in a positive light by Chinese people. (not sure if you reversed the meaning here, assuming you intended to say that these things are seen in a positive light by the ppl) Since the Chinese people are kept in the dark on such things, and not trusted with knowledge of even recent history (e.g., Tienanmen massacre, Great Firewall, constant censorship), they cannot be said to have any view at all of the reality. That is different from having an actual positive view. >>Why would the care about opinions of the people/states that already hate China and want it to fail? This is a completely bogus and strawman argument. I, and everyone I know wants the Chinese, and all people, to succeed, and enjoy prosperous self-determination. Even if it is out of self-interest, e.g., avoiding the disastrous knock-on effects of China failing, no one wants China to fail. What people DO want is for the CCP to stop behaving as a herd of authoritarian despots at home and abroad. Wanting authoritarian despotism to stop is NOT the same thing as wanting failure. What is sad is the the CCP is so detached from reality that they cannot see that they could be very successful by stopping these behaviors. It is like they can't stop making the same mistakes as the 1958 Smash Sparrows/Four Pests campaign, thinking that they are improving things, but actually creating a disaster (famine in this case). Let's hope these disasters don't also kill 20 million people.
  - 5y ago

chasd00 5y ago

letting a somewhat private company fail may end up making the central authorities look good. They can then start the "look what capitalism did to you, we're in charge of your life now." propaganda machine.

jiinga 5y ago
Please. The CCP runs all these companies already.
- FooBarWidget 5y ago
  That's not how China works. Maybe you're thinking about the Soviet model, but China hasn't followed that for 40 years now. I'm Chinese.