4 ms·

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

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.

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.