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Chinese Evergrande Defaulted
- Thread starter C ountry
- Start date
No. They are small potatoes from everything I’ve read
Wow. You've heard absolutely 100% wrong. This very likely might be our Lehman Brothers moment.
The issue isn't one real-estate developer in China, but rather it's a systemic problem with all of China's real-estate market. China makes up a significant portion of the world's GDP, and real-estate is something like 25% of China's GDP. A hit to China's real-estate is a massive blow to China's economic output, which is a massive blow to the world's economic output. Keep in mind that back in '08, no one though that mortgage backed securities going sour would bring down the system like it ended up doing. The global economy is like a set of dominoes; once one falls, the rest will fall one by one. Just as some mortgage backed securities in the US took down the global economy in '08, real-estate developers in China going down could very easily do the same; these companies defaulting on debt is much more disruptive than MBS's ever were.
What could likely happen is that as these Chinese real-estate companies default, any financial entities which have their debt on their balance sheets will suffer great losses and might even go insolvent. As lesser financial entities start to fall, they will drag down any larger ones that invested in them as well. Also keep in mind that it was almost a year after Lehman Brothers went bankrupt that the effect of which finally became known; we wont know how devastating Evergrand and other Chinese real-estate firms defaulting on debt will end up being until up to about a year from now.
But that company is like 3% of the Chinese market, which is clearly propped up by the communist government (like the ghost towns). When 2008 happened here we didn’t crash Japan’s market or many of those in Europe. Yeah it’s connected but I would bet you 50 yuan this doesn’t become a huge ripple. The Us markets know this was coming and already priced it in
That one company may be 3% of the Chinese market, but it's not just that one company. It's pretty much every major real-estate company in China. It's therefore also every business dependent on these businesses, like the companies supplying building materials, laborers, etc, etc. Again, it's only in retrospect that we realize what kind of impact mortgage backed securities going back ended up having, but prior to the GFC virtually no one would have predicted that MBS's going bad would end up having the catastrophic effect it did. Evergrand and the other real estate companies have, figuratively, a thousand times more impact thatn MBS's ever did and that's just to start with. What kind of contagion effects the real estate market in China going south will have are currently unknown, but if the relational size of Evergrand/etc vs MBS's produce a similar relational size in the amount of financial contagion then this would end up causing massive havoc in the global economy that would make the GFC look like a day in the park.
It is just a widening crack. Not the first big company in China to default. If U.S companies keep investing there we will be dragged down with them ,
If we would just go soviet era cold war on them we could eliminate them as a threat.
If we would just go soviet era cold war on them we could eliminate them as a threat.
I'll take your bet and raise you a Zimbabwe $50,000,000 bill
