Evergrande Situation

[ThailandRyan]

What will happen to the money from the Ghost cities they built and never sold....

[Rimmer]

Off topic troll post and replies removed

[ourdon]

On 9/20/2021 at 9:43 PM, Neeranam said:

The CHinese govt. will bail them out to stop a similar thing that happened to Lehman in 2008.

The Chinese government may bail them out ... but I don't think so.  They owe 300 Billion dollars.  That's enough to even choke the PRC.  They are the most in debt company in the world.  I think they will be savagely salvaged and broken up into several smaller profit centers.  I think the next year will not go well for some Chinese multi millionaires that are heavily invested.  Might have to sell the Bangkok condo's.

 

They aren't the Lehman brothers either.  When Lehman's went down they had established a major presence in almost every market in the world.  When they went down they took every market with them.  Evergrande for the most part is concentrated within the borders of the PRC.  They should have only a limited effect on world markets.  There will be problems and some tectonic shifting in the Chinese supply chains.  How it will affect countries like Australia remain to be seen. 

 

Damm, my crystal ball has gone cloudy.

Needs a san miguel rinse

[ozimoron]

https://www.reuters.com/world/china/china-evergrande-bondholders-limbo-over-debt-resolution-2021-09-24/

Edited September 24, 2021 by ozimoron

[WorriedNoodle]

My take is this is all a NOTHING-BURGER, stoked up by media so the market makers drive down prices globally to buy cheaper and they go back up again.

 

EVERGRANDE may default and not repay its debts, but the CCP won't let that upset their people whom they totally control, as the CCP takes over and liquidates Evergrande to allow other companies to complete their unfinished projects and not leave people homeless. All the banks with their Evergrande loans will be OK as well, since they are CCP owned!

 

If you have Evergrande shares, they go to zero. Bond holders, who lent money to Evergrande will see  a big cut in their returns also. The rest of the world should be fine!

 

Just my take but I always take all the news with a pinch of salt, its driven by big money.

[ExpatOilWorker]

HNA already went under, Evergrande is sinking fast and Wanda, Fosun and Anbang could be next.

Looks like China caught some kind of financial bug.

[ExpatOilWorker]

The Evergrande CEO might want to take a trip abroad and pack extra socks.

 

The New York Times: China Detains Top HNA Group Executives.
https://www.nytimes.com/2021/09/24/business/china-hna-evergrande.html

 

Beijing is setting up a STASI system.

 

All but the smallest domestic and foreign companies must have Communist Party cells now.

[ExpatOilWorker]

On 9/22/2021 at 5:13 AM, ExpatOilWorker said:

Not so sure about that. Evergrande is about to default on their dollar loans and I don't think Beijing is interested in spending their foreign reserve on pleasing some international investors. 

Beijing might want to help Evergrande so the 1.5 million home owners with half finished condos don't go bananas, but at the safe time they might shaft the international investors. Let's see in the next few weeks.

Looks like I was right.

 

“The likelihood that Evergrande will prioritise the offshore noteholders is diminishing quickly and is extraordinarily low,”

 

https://www.ft.com/content/298b140e-b46c-41a9-9329-fb633a070dfd

[dj230]

3 hours ago, ExpatOilWorker said:

Looks like I was right.

 

“The likelihood that Evergrande will prioritise the offshore noteholders is diminishing quickly and is extraordinarily low,”

 

https://www.ft.com/content/298b140e-b46c-41a9-9329-fb633a070dfd

Getting financial news from the media is probably the worst place you can get it from as they only care about clicks/viewers

[topt]

On 9/25/2021 at 11:39 AM, dj230 said:

Getting financial news from the media is probably the worst place you can get it from as they only care about clicks/viewers

Isn't that how you started this thread............

[ozimoron]

On 9/25/2021 at 2:09 PM, dj230 said:

Getting financial news from the media is probably the worst place you can get it from as they only care about clicks/viewers

Where would you recommend we get financial news then?

[dj230]

1 hour ago, topt said:

Isn't that how you started this thread............

Haha touché 

but what I meant was getting news about the situation, opposed to news of the situation 

 

I wouldn’t trust any public media to tell me what would happen for the evergrande situation, which is why I made this thread to get peoples opinions. 
 

I usually pay for direct information from news sources, most of the time they’re saying the media is overblown, or actually give advice on whether certain investments are safe. 
for example for the evergrande situation, I was told that it would be contained in China, thus I wasn’t worried about the effect on my investments 

[topt]

1 hour ago, dj230 said:

I was told that it would be contained in China

If I was an offshore $ bond holder I would not expect to see much return - likely a very big haircut!

That will affect some individual bond holders and probably some bond funds. Same, same Venezuela and Ecuador to name but 2 in the recent past........

[AlexRich]

At this stage no one really knows what the fallout will be from Evergrande. The CCP may well direct the local Banks to step in and control the damage. But a misstep is possible, and that could have a ripple effect on other property companies. I read the sector makes up 25% of China’s GDP so it is pretty significant. Evergrande appear to have defaulted on a dollar denominated interest payment, but technically they get a 30 days grace period before it is classified as an actual default. So next month should be interesting. I don’t think this issue is going away. 

[ballpoint]

The bigger global fallout could well be based on what this does for China's growth model.  Since around 1997 it has followed a "build, build, build" playbook, throwing billions into the real estate sector.  The acceleration of this, between 2009 and 2016, was a key factor in helping the world recover from the 2008 GFC.  It then levelled out, but still remains at around 13% of the country's total GDP:

 

Just as this rise in investment aided the world's financial situation, so too would a drastic reduction in investment be detrimental to it.  China consumes a far larger proportion of commodities than its population would warrant.  Should Beijing decide to cut "build, build, build", its need for many of these would also drop.

 

China's Staggering Demand for Commodities in One Chart (visualcapitalist.com)

 

There is already fallout in Japanese manufacturers of such diverse items as toilets, air-conditioners and paint, along with manufacturers of heavy construction equipment:

Evergrande woes hit Japan's toilet, air-conditioner and paint manufacturers (yahoo.com)

 

The importance of China to the world economy is further shown in the following graphic of the world's major trading partner:

 

 

 

The website has a good year by year animation of this:

How China Overtook the U.S. as the World's Major Trading Partner (visualcapitalist.com)

 

Therefore, even though many economists are not predicting economic collapse from Evergrande's downfall, should China move from one growth model to another, its annual growth would likely take a hit.  And the knock-on effect to major commodity and construction equipment exporters could also be detrimental to world markets.

 

 

[topt]

1 hour ago, ballpoint said:

its annual growth would likely take a hit. 

Pretty much what is suggested here - I hadn't seen this before -

https://citywire.co.uk/investment-trust-insider/news/evergrande-it-s-not-lehman-but-there-will-be-consequences/a1559287?ref=investment-trust-insider-latest-news-list

[eliassfeir]

On 9/24/2021 at 1:23 PM, ourdon said:

The Chinese government may bail them out ... but I don't think so.  They owe 300 Billion dollars.  That's enough to even choke the PRC.  They are the most in debt company in the world.

That's bull... 

 

They owe 300 Billion dollars, sure. But do you know how much in assets they have? 

 

If the CPC bails them out, they would lose nothing, provided the CPC controls the economy in which Evergrande operates... it would be like a dad buying his son's company so to speak.... at the end of the day the money stays within the family. 

 

And so do the assets, if Evergrande manages to finish all the projects they have ongoing (which are already sold btw), their total assets will for sure offset the debts by far, and even if they don't finish them, probably their already finished and working like a charm assets are still enough to offset those debts (football stadiums, shopping malls, condos, ...)

 

Evergrande has a big cash liquidity problem, which the CPC can and will solve by bailing them out, and taking control of Evergrande, and probably making the former directives pay for what they've done (jail)... 

 

There is nothing much to worry about, this is not Lehman Brothers... You would only need to worry about this if you had invested in one of Evergrande's real estate projects.

 

Far more worrying to the Western world, is the coal shortage and thus power problem China is suffering at the moment. Many factories just can't operate, and that WILL cause shortages and raise the prices of products in the West.

Edited September 29, 2021 by eliassfeir

[dj230]

12 hours ago, eliassfeir said:

That's bull... 

 

They owe 300 Billion dollars, sure. But do you know how much in assets they have? 

 

If the CPC bails them out, they would lose nothing, provided the CPC controls the economy in which Evergrande operates... it would be like a dad buying his son's company so to speak.... at the end of the day the money stays within the family. 

 

And so do the assets, if Evergrande manages to finish all the projects they have ongoing (which are already sold btw), their total assets will for sure offset the debts by far, and even if they don't finish them, probably their already finished and working like a charm assets are still enough to offset those debts (football stadiums, shopping malls, condos, ...)

 

Evergrande has a big cash liquidity problem, which the CPC can and will solve by bailing them out, and taking control of Evergrande, and probably making the former directives pay for what they've done (jail)... 

 

There is nothing much to worry about, this is not Lehman Brothers... You would only need to worry about this if you had invested in one of Evergrande's real estate projects.

 

Far more worrying to the Western world, is the coal shortage and thus power problem China is suffering at the moment. Many factories just can't operate, and that WILL cause shortages and raise the prices of products in the West.

this is a good perspective I agree with

I have also moved all of my investments to those unaffected or can benefit from inflation and higher interest rates 

[ExpatOilWorker]

Fantasia, Modern Land and Sinic Holdings are now joining Evergrande in the Chinese real-estate melt down.

[Salerno]

On 9/30/2021 at 3:33 AM, eliassfeir said:

Far more worrying to the Western world, is the coal shortage and thus power problem China is suffering at the moment.

Well if that's the case, they can always drop the bully-boy tactics and go cap in hand to Australia.

[ExpatOilWorker]

One by one, they will fall.

 

[ExpatOilWorker]

Although China is big, it isn't that big and they clearly have over-build.

 

Government figures show that about 1.6 million acres of residential floor space were under construction at the end of last year. This was roughly equivalent to 21,000 towers with the floor area of the Burj Khalifa in Dubai, the tallest building in the world.

 

https://businesshala.com/beyond-evergrande-chinas-property-market-faces-a-5-trillion-reckoning/

[ballpoint]

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.

[ExpatOilWorker]

On 10/13/2021 at 8:39 AM, ballpoint said:

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.

You have a little too much faith in the Commie planners. They were all in on the real-estate money gravy train. Local government were pimping land and Beijing were enjoying the ever increasing M2 money supply to fund their surveillance state with millions of cameras and data centers.

Money is power and the CCP and Mr. Xi just love total power and control.

They will love if the Evergrande chaos would just go away, but it ain't, so in a sense you are right, they will design some sort of orderly demise of Evergrande and a few other grey rhino companies. 

Reality is about to hit China. They build an amazing infrastructure, but now it is time to maintain it and that is expensive. There is a reason the NY subway and the London tube is in such a poor shape. It is darn expensive to maintain and people expect to pay nothing. China has by far the biggest rail network, it is relative new now, but soon it will require costly repairs. 

China is just entering an era of normal growth, lets see how they will handle that.

If I was Jack Ma, I would extend my European trip.

[ExpatOilWorker]

Yango Group and Kaisa Group are next in line to collapse. Soon Evergrande will not be alone in the Chinese real-estate chaos.