ballpoint

A caterpillar

Just take it on the chin and carry on.

No! Not back to stuffing again!

The biggest takeaway from this, apart from just how little most of the West understands about China, is that Evergrande is failing because the Chinese government wants it to. For the past 30 or so years, China has seen 20 million people enter the job market annually. It needed to create 20 million jobs every year to keep the people employed and happy. Companies were encouraged to spend in excess, including building those "ghost cities", (which, despite other posts in this thread, are filling up, though that wasn't their main purpose.). Now, however, the labour force is shrinking. China wants to rein in the spending as its new model is to promote the RMB as a reserve currency and reduce fossil fuel imports. Companies like Evergrande were harming both of these goals, and failed to slow down in support of the new government policy, so they had to be stopped. The collapse of Evergrande, and other big spending, big borrowing, resource gobbling, businesses, sends a message to the rest of the country, particularly the tech sector: "Stop reaching too far. Big is no longer beautiful. The days of excess capital spending, of borrowing too much, are over, and now you’re going to be punished for continuing it because, when you do this, you put our entire financial ecosystem at risk." - "killing the chicken to scare the monkeys" as Louis Gave, one of the most credible China economic watchers, puts it. Contrary to Western "policy" at times like this, China doesn't believe in "too big to fail", it can comfortably absorb this and other failures - indeed, will encourage them should others fail to read the message they are sending here. Everyone's saying this is China’s Lehman Crisis, but it isn't. The U.S. government was trying to save Lehman, and when it failed to do so, everybody freaked out. Here, China is trying to take down Evergrande. The irony is, China is behaving in a far more capitalist manner than the US did during the 2008 GFC, (and continues to do with all the current Covid bail outs to big businesses, like airlines). China has a trade surplus of 50 to 70 billion a month, and are getting roughly 20 billion a month from government bond inflows, because it’s now the only country in the world offering positive real rates. It could have bailed Evergrande out, but it doesn't want to. Evergrande will get broken up into smaller, leaner, businesses. Equity holders will lose big time, but the new companies will pick up the pieces so the average citizen who has put a deposit on a flat, and the hardware and appliance suppliers who are waiting to be paid, will be satisfied, and the message will have been passed on.