And Now The Storm
China's Country Garden Defaults On $11 Billion In Offshore Debt
China's premier real estate developer, Country Garden, has confirmed the inevitable and defaulted on its offshore debts.
“The company expects that it won’t be able to meet all of its offshore payment obligations on time, due to a deep correction in China’s home market and its subdued sales,” the developer said in a statement to Bloomberg News in response to questions about its plans for the $15.4 million of interest due. A holder of the note said they had yet to receive money.
As current subscribers already know, I have discussed China’s ongoing real estate collapse at some length, including the rampant speculation that Country Garden represents China's “Lehman Brothers moment.”
That moment has now arrived. The failure to make a $15 Million coupon interest payment will now trigger formal default on the developer's $11 Billion in offshore debt.
Now comes the fallout and whatever financial firestorm default will unleash.
One casualty of these events is already emerging: China's credibility on the world stage as an economic power.
For decades China has sought to evade the inevitable corrections of the “invisible hand.” Now we see yet again that government intrusion into private markets never ends well, and comes with a hefty price tag.
China does not yet know how high that price will be. China is about to learn how high the price—and so will we.
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