How far will President Xi Jinping go with his crackdown on China's indebted real estate companies?
China Evergrande Group has been in crisis for months, but now it is starting to appear more than plausible that, despite what is happening and what has happened to many Chinese companies, the government of Xi Jiping does not intend to intervene in the rescue of the most exposed companies in the sector. .
Analysts at Goldman Sachs Group Inc. have asked the authorities to send a "clearer message" on how they intend to prevent Evergrande from causing "significant repercussions" on the overall economy. Citigroup Inc. said officials may be making a "political mistake of excessive tightening". Economists at Societe Generale SA assign a 30% probability to a "hard landing" for the crisis resulting from the Evergrande default, which would be disastrous for the Chinese real estate sector . It is necessary to assess whether these disturbances to the market and to the sector will be sufficient to modify Chinese policies.
" Even though most people don't expect Evergrande to suddenly collapse, the silence and lack of important action on the part of policymakers is making everyone panic ," said Ding Shuang, chief economist for Greater China. and North Asia at Standard Chartered Plc. in Hong Kong. " I expect China to offer at least verbal support soon to stabilize sentiment ." The lack of public intervention, even if only formal, is reminiscent of the worst moments in our financial history, those of the last months of BPVI, which ended as we know.
The developer indicator in Hong Kong dips to a five-year low
Monday's selloff left some risky assets intact. Hong Kong's Hang Seng Index plunged more than 3%, led by real estate companies. Equity benchmarks in Germany and Italy lost more than 2%, while the S&P 500 index fell 1.7% for its largest decline in four months. The average price of junk-rated dollar banknotes of Chinese borrowers has fallen the most in about a year. An intraday collapse of nearly 12% in iron ore futures made matters worse, as did the holiday closures in many Asian markets. It is true that today the European stock indices have rebounded and HK has also improved slightly, but not to compensate for the strong previous losses.
The Chinese authorities, who have hired consultants to follow up the problem, however, are currently silent. Even the press avoids talking about the problem, except to say that it is an isolated event Everyone minimizes, as if nothing had happened, an attitude that is the best way to maximize future damage.
Between Saturday and Friday, the PBOC injected 190 billion Yuan, not too much, in a concrete act.
Evergrande has about $ 300 billion in liabilities, more than any other real estate developer in the world. It is a whale in China's high-yield dollar bond market, which accounts for about 16% of outstanding bonds. Approximately $ 83.5 million in interest on a five-year dollar bond will expire on Thursday, and failure to pay within 30 days could result in insolvency. On the same day, an internal bond expires which should pay 36 million dollars. Too much money, all together.
Evergrande's stock fell as much as 19% on Monday, briefly bringing its market value to its lowest ever recorded. The stock closed down 10%.
"With policy makers showing no signs of fluctuating on deleveraging in the housing market, the latest headlines regarding Evergrande likely suggest that real estate activity could deteriorate further in the absence of the government providing a clear path to eventual resolution. " , Goldman economists led by Hui Shan wrote in a Sunday note.
It seems like a strange war between the government and the market who gives in first, without realizing that, in this race, there can be no winners, only losers. Even if the government aims at deleveraging the sector, it is absurd to get there by putting companies in crisis by not allowing them to complete investments that have already begun. We are in that classic case, indicated by Hayek, of malinvestment, only that the Chinese government is putting in its own.
This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/la-cina-ha-un-30-in-piu-di-possibilita-di-hard-landing/ on Tue, 21 Sep 2021 16:35:34 +0000.