In what analysts are calling China’s “Lehman Brothers moment,” the country’s largest real estate developer filed for Chapter 15 bankruptcy in New York on Thursday..Shenzen-based China Evergrande Group sought protection from creditors while it struggles to restructure some US$340 billion worth of debt in Hong Kong and the Cayman Islands..Analysts said the filing was expected because its US-dollar denominated bonds are governed under New York securities laws even though the deal, which was announced earlier this year, is being finalized offshore..The law allows US bankruptcy courts to step in when an insolvency involves another country..“The proposed restructuring will alleviate the company’s pressure of offshore indebtedness and facilitate the company’s efforts to resume operations and resolve issues on shore,” Evergrande said in its filing..Evergrande initially defaulted on its debt in September 2021, roiling global markets and triggering a series of failures across the Chinese real estate market which risks about a third of the country’s gross domestic product..Evergrande alone is roughly 2% of China’s economy..The company is largely responsible for the ‘zombification’ of the Chinese property market, where major apartment complexes are left unfinished because it is unable to pay for construction materials..Most of the outstanding debt is owed to contractors, creditors and homebuyers who have paid deposits for unfinished apartments on the mainland..Although it could have repercussions for the broader global economy — especially if the Chinese government fails to step in — only 27% of Evergrande’s US-denominated interest-bearing debt is held abroad, most of it in Hong Kong. Which is to say, the majority of its liabilities remain in China..As part of the plan, Evergrande said it would require additional financing of $36.4 billion to $43.7 billion to return to normal operations. The company also warned its EV subsidiary was at risk of shutting down, although a Dubai-based company bought a $500 million equity stake in it earlier this week..The Western Standard attempted to quantify any exposure from the Canada Pension Plan and AimCo but couldn’t find any direct holdings for either one on their respective web sites — although Evergrande is a large conglomerate with dozens of subsidiaries..The bigger risk for Western companies is the stability of China’s economy itself. The Communist Party is reluctant to introduce major structural reforms for fear of sparking social unrest. .The country’s debt-to-GDP ratio is one of the highest in the world and some estimates have suggested as much as 25% of its economic growth has been fuelled by bad debt. With the world’s second-largest economy, it accounts for about a fifth of the world’s total economic output..A major collapse would spark massive inflation in Western countries, for everything from electronics, medical products, clothing and even children’s toys..On the bright side, it would effectively neuter its military ambitions and spark a manufacturing repatriation back to North America and Europe — which is already happening. .It could also eventually lead to regime change that could either lead to a rebalancing of the world order, or alternatively, a global conflict..Noted geopolitical analyst Peter Zeihan raised eyebrows in a January interview with Joe Rogan, in which he predicted the People’s Republic would collapse in 10 years precisely due to this type of scenario.."This is their last decade," Zeihan said of China and its economic success.
In what analysts are calling China’s “Lehman Brothers moment,” the country’s largest real estate developer filed for Chapter 15 bankruptcy in New York on Thursday..Shenzen-based China Evergrande Group sought protection from creditors while it struggles to restructure some US$340 billion worth of debt in Hong Kong and the Cayman Islands..Analysts said the filing was expected because its US-dollar denominated bonds are governed under New York securities laws even though the deal, which was announced earlier this year, is being finalized offshore..The law allows US bankruptcy courts to step in when an insolvency involves another country..“The proposed restructuring will alleviate the company’s pressure of offshore indebtedness and facilitate the company’s efforts to resume operations and resolve issues on shore,” Evergrande said in its filing..Evergrande initially defaulted on its debt in September 2021, roiling global markets and triggering a series of failures across the Chinese real estate market which risks about a third of the country’s gross domestic product..Evergrande alone is roughly 2% of China’s economy..The company is largely responsible for the ‘zombification’ of the Chinese property market, where major apartment complexes are left unfinished because it is unable to pay for construction materials..Most of the outstanding debt is owed to contractors, creditors and homebuyers who have paid deposits for unfinished apartments on the mainland..Although it could have repercussions for the broader global economy — especially if the Chinese government fails to step in — only 27% of Evergrande’s US-denominated interest-bearing debt is held abroad, most of it in Hong Kong. Which is to say, the majority of its liabilities remain in China..As part of the plan, Evergrande said it would require additional financing of $36.4 billion to $43.7 billion to return to normal operations. The company also warned its EV subsidiary was at risk of shutting down, although a Dubai-based company bought a $500 million equity stake in it earlier this week..The Western Standard attempted to quantify any exposure from the Canada Pension Plan and AimCo but couldn’t find any direct holdings for either one on their respective web sites — although Evergrande is a large conglomerate with dozens of subsidiaries..The bigger risk for Western companies is the stability of China’s economy itself. The Communist Party is reluctant to introduce major structural reforms for fear of sparking social unrest. .The country’s debt-to-GDP ratio is one of the highest in the world and some estimates have suggested as much as 25% of its economic growth has been fuelled by bad debt. With the world’s second-largest economy, it accounts for about a fifth of the world’s total economic output..A major collapse would spark massive inflation in Western countries, for everything from electronics, medical products, clothing and even children’s toys..On the bright side, it would effectively neuter its military ambitions and spark a manufacturing repatriation back to North America and Europe — which is already happening. .It could also eventually lead to regime change that could either lead to a rebalancing of the world order, or alternatively, a global conflict..Noted geopolitical analyst Peter Zeihan raised eyebrows in a January interview with Joe Rogan, in which he predicted the People’s Republic would collapse in 10 years precisely due to this type of scenario.."This is their last decade," Zeihan said of China and its economic success.
