China's property crisis deepens with 87% value wipeout in developers' dollar bonds (msn.com) China's economy is facing many headwinds at the moment, and its once-booming property sector is increasingly looking like a bad bet for foreign investors. The market for Chinese developers' dollar-denominated bonds has seen a meltdown over the past two years, losing a staggering 87% of value. The rout has wiped out $135.5 billion of value from $154.9 billion of outstanding notes, according to an analysis by Debtwire. "The average price on the notes is now only a tad above 11 cents on the dollar," Debtwire co-managing editor Chaim Estulin wrote in an accompanying LinkedIn post.
Two lessons for the day: 1) China's bid for world domination is over. 2) China needs the west more than the west needs China. China’s bid for world domination has backfired
Wasn’t there a mini scandal where they sold us super cheap drywall and it was full of asbestos and the like. Imagine what it must be like there.
It wasn't asbestos that was the problem, it was sulfur (specifically hydrogen sulfide). Drywall normally consists of calcium sulfate, so oxidized sulfur is normally in there, but not hydrogen sulfide, which is apparently acidic and corrosive in the reduced form. The warm and humid weather of the southeast summers accelerated the corrosion. Drywall is not always used in China. Concrete walls are fairly common. It is possible that the U.S. got some lower grade of drywall than the Chinese use in their own buildings. Chinese drywall - Wikipedia
Another interesting detail on homeowner loans in China. Not only is a large downpayment required (typically about 24%), but defaulting on a loan means that your other assets will get seized to pay the debt. The man quoted in this article thinks that the real estate crisis in China will not be that bad and will not spread into other areas of the economy. The Chinese property market may look like it's imploding. But one expert doesn't think it'll cause a financial crisis — and there may even be a bright spot.
So ghost cities with incomplete flats aren’t going to crash? I think this guy is whistling passed the grave yard.
I think so too. It may be possible that the real estate crash does not take down the rest of the economy, but that seems unlikely. The positive, if there is one, is that people will normally not walk away from their mortgages, which happened in the U.S. during our real estate crash. There is still a lot of unsold apartment buildings, however. I also do not agree with the idea that there is a "bright spot" in China's real estate problem--he claims that when the economy recovers, that people will snatch up the unsold apartments. That's not happening in most cases, because the apartments are in the wrong cities. No one wants to move from the coast to Chongqing. China may have to force companies to move to Chongqing and bring their employees with them, and I don't see that going well for them.
Exactly a command economy only gets you so far. They learned that when the people refused to wear their masks.
My uneducated guess is that the only way that stock dropped 26% and gained back 25% of it the same day is with government purchases.
China’s Country Garden faces payment deadline after twice dodging default (msn.com) Embattled Chinese property developer Country Garden faces yet another liquidity test with a deadline to pay $15m in interest linked to an offshore bond after having dodged default at the last minute twice this month. The country’s top private developer, whose financial woes have worsened the property sector outlook and prompted Beijing to unveil a raft of support measures, will have a 30-day grace period after Monday’s deadline to pay the coupon before it would be considered in default. If Country Garden fails to pay the $15m before the grace period ends in mid-October, the principal will become due immediately and any failure to service the bond will trigger cross-default terms on other credit, said Sandra Chow, co-head of Asia-Pacific research at CreditSights. “It’s going to be really hard” for Country Garden to meet its debt obligations due to its tumbling cash levels at a time when property sales in the world’s second-largest economy remain very weak, Chow said.
Foreign investors are shunning Chinese stocks and bonds as Beijing's economic headache builds (msn.com) International investors have started shunning Chinese stocks and bonds, as the world's second-largest economy sputters after three years of zero-COVID lockdowns. Foreign traders pulled $188 billion from the country's equity and debt markets between December 2021 and June 2023, according to data from Bloomberg – representing a decline of 17%. The flight from China comes with Beijing facing a number of economic issues, including weaker-than-expected growth, a slumping renminbi, and a property market that's spend the past two years lurching from one crisis to another. International investment has also likely dried up due to the hardline policies of President Xi Jinping, whose third term in office has coincided with bans for US semiconductor companies like Micron and a regulatory crackdown that's wiped an estimated $1.1 trillion off the market value of local Big Tech companies.
China is dumping record amounts of US Treasuries to raise liquidity. Is this preparation for being able to support a real estate crash there or just positioning for an increasingly adversarial relationship or currency manipulation to restore their cheap product advantage? China’s Sell-off of US Treasury Bonds: A Shift on the Global Financial Chessboard (msn.com) In August alone, Chinese investors sold a staggering $21.2 billion in US assets, including Treasury bonds, stocks, and agency debt holdings. This marks the highest amount in four years, according to data from the US Department of the Treasury. This sell-off seems to be a reaction to the weakening of the Chinese yuan and the government's attempts to bolster its currency. The ramifications of this move aren't confined within China's borders; it has led to a spike in bond yields, which could potentially affect borrowing costs for the US government and businesses. This move by Chinese investors comes amidst a broader sell-off in the US bond market. The yield on the US 10-year Treasury bond is near a 14-year high of 5%. Barclays strategists warn that unless there's a financial shock or a recession, investors shouldn't expect bond yields to decline anytime soon. This widening gap between Chinese and US bond yields is reducing the attractiveness of Chinese assets, contributing to the weakening of the yuan against the US dollar. Speculation abounds that the Chinese government's sell-off of US bonds is part of a strategy to amass dollars that it can use to intervene and prop up the yuan. Amid a faltering property market, slumping trade, and weak growth, the economic environment in China is riddled with uncertainty. However, the data from the US Department of the Treasury may not fully capture the extent of China's holdings in US assets. Some economists suggest that China's overall holdings of Treasuries and mortgage bonds may have remained relatively stable over the past eight years, hinting at a strategy of accumulating holdings through intermediaries that are not attributed to China in US data.
I'm not sure that $21.2 billion qualifies as "staggering" when it comes to the two largest economies in the world. China owns over $800 billion in U.S. assets. It's a significant amount, but not that enormous in the grand scheme of things. It does indicate that they have some problems, of course. I will be curious to see if they continue to sell assets on a regular basis going forward.
