Nov 7, 2021
China Debt Collapse:
What happens in China doesn’t necessarily stay in China – it can very easily spread to our economy, destroying our savings, pensions, equities and even bringing down our housing market.
The effects are complex and far-reaching and have certainly not been contained, as many experts are claiming
The housing market represents 62% of household net worth in China, and with the crisis about to bring home values down, the average Chinese citizen is about to have a lot less net worth and therefore less disposable income to spend on imports
China’s economy is now more integrated within the global economy than ever before. Which is good for China, but not so good for us when situations like this come along
The Evergrande crisis hit headlines two months ago, with many comparing it to the bankruptcy of Lehman Brothers, but let me explain why this comparison isn’t quite right
The bankruptcy of Evergrande could create a much more serious and systemic banking crash than the 08 crisis, affecting billions of people’s lives around the Globe. The problem is not so much the bankruptcy of Evergrande itself, but the domino effect it could have on global financial markets.
Fidelity, UBS, HSBC, Pimco, Blackrock, and Alliance are some of the largest financial institutions on Earth, even managing people’s pension plans, and they all have exposure to Evergrande
When the US housing bubble popped in 2008, large financial institutions declared bankruptcy, resulting in a global recession.
But this time, if China’s real estate market crashes, it could be a whole lot worse
It’s thought that China’s offshore bond market has an outstanding debt of somewhere in the region of $210 billion. Evergrande’s contribution to this is believed to be around $19 billion – that’s the money they’ve borrowed outside of China with all those big banks just mentioned.
So what happens if the China debt bubble bursts?
Real estate makes up around 29% of the Chinese economy. If real estate falls, China falls
If China falls, the World as we know it today, ceases to exist… At least until another developing nation picks up China’s slack
Banks and other lenders would experience a liquidity crisis. There would be a wave of bankruptcies from the biggest institutions right down to the mom-and-pop businesses, no one would be immune from this.
China’s entire real estate sector is a ticking time bomb buckling under the weight of its debt due to recent regulation changes by the CCP.
In October, Sinic Holdings defaulted after failing to pay $246 million in bonds, China Properties Group also defaulted after being unable to pay back $226 million in bonds. And Fantasia Holdings defaulted on $206 million of bonds.
Just this week Kaisa Group has defaulted on its debts again, dragging it’s stock down 70% this year.
In the first half of 2021, China’s corporate bond defaults hit $18 billion – a record high. A total of 25 companies, more than half of which are state-owned companies controlled by the Communist Party are defaulting on their payments.
A number of other companies also defaulted including China Fortune Land, Macro Link, Yina China, Oceanwide Holdings, and Tahoe Group
China’s overall debt now stands at well over 270% of its GDP. China’s outstanding foreign debt reached $2.4 trillion in 2020. Those are the numbers we know about. What’s making this situation worse is the debt which we don’t know about
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