Evergrande's offshore bonds have been trading at 20 cents on the dollar, and its looking like that was still an egregious overpricing. If Country Garden also spirals into liquidation the holders of that $11 Billion are going to be lucky to get back $1 Billion on their notes.
Here's where it gets thorny for China: investors are already tur…
Evergrande's offshore bonds have been trading at 20 cents on the dollar, and its looking like that was still an egregious overpricing. If Country Garden also spirals into liquidation the holders of that $11 Billion are going to be lucky to get back $1 Billion on their notes.
Here's where it gets thorny for China: investors are already turning away from China, as Beijing tries to limit access to economic and financial market data.
Country Garden's default is not going to make Chinese capital markets any more attractive.
As for what happens with the unfinished homes--excellent questions all. The inability of developers to finish housing projects is already crippling home sales, with severe knock-on effects for the developers.
China's real estate development model relies on prepayment for the home before it is built trusting the developer to finish. That trust has been well and truly broken.
The reputational damage becomes significant because of that ruptured trust. For China to resurrect its real estate sector there has to be a means to rebuild trust both in the markets and in the government. The CCP possessing significant credibility overseas would be the platform upon which to rebuild that trust (so long as the CCP is credible overseas it has a basis on which to spin necessary property market reforms).
As it stands, China is losing credibility in the overseas markets, and that is going to impact its ability to execute reforms of its property markets to rebuild trust--and without that trust, it cannot resurrect its property markets in anything resembling their current form. The Chinese people just aren't going to be buying homes at the pace they have been, and that means the ones that have been purchased are going to steadily lose value. Wealth destruction is already occurring in China as a consequence.
Keep in mind they've already had one episode of mortgage boycotts and related social unrest.
Country Garden's default could spark a renewed interest in such boycotts, and that quickly becomes an existential political crisis for the CCP.
I doubt this is going to be a nothingburger. There are just too many pieces of dry tinder in China's real estate markets for there not to be a firestorm of some kind.
Evergrande's offshore bonds have been trading at 20 cents on the dollar, and its looking like that was still an egregious overpricing. If Country Garden also spirals into liquidation the holders of that $11 Billion are going to be lucky to get back $1 Billion on their notes.
Here's where it gets thorny for China: investors are already turning away from China, as Beijing tries to limit access to economic and financial market data.
https://substack.com/@allfactsmatter/note/c-42053362
As it is, foreign direct investment in China has collapsed from $400 Billion in 2020 to $20 Billion in 2023.
https://www.fxstreet.com/news/foreign-corporate-investment-collapsing-in-china-nataxis-202310101738
Country Garden's default is not going to make Chinese capital markets any more attractive.
As for what happens with the unfinished homes--excellent questions all. The inability of developers to finish housing projects is already crippling home sales, with severe knock-on effects for the developers.
https://newsletter.allfactsmatter.us/p/is-chinas-real-estate-bubble-reaching
China's real estate development model relies on prepayment for the home before it is built trusting the developer to finish. That trust has been well and truly broken.
The reputational damage becomes significant because of that ruptured trust. For China to resurrect its real estate sector there has to be a means to rebuild trust both in the markets and in the government. The CCP possessing significant credibility overseas would be the platform upon which to rebuild that trust (so long as the CCP is credible overseas it has a basis on which to spin necessary property market reforms).
As it stands, China is losing credibility in the overseas markets, and that is going to impact its ability to execute reforms of its property markets to rebuild trust--and without that trust, it cannot resurrect its property markets in anything resembling their current form. The Chinese people just aren't going to be buying homes at the pace they have been, and that means the ones that have been purchased are going to steadily lose value. Wealth destruction is already occurring in China as a consequence.
Keep in mind they've already had one episode of mortgage boycotts and related social unrest.
https://newsletter.allfactsmatter.us/p/real-estate-crisis-banking-crisispolitical
Country Garden's default could spark a renewed interest in such boycotts, and that quickly becomes an existential political crisis for the CCP.
I doubt this is going to be a nothingburger. There are just too many pieces of dry tinder in China's real estate markets for there not to be a firestorm of some kind.