Is this what Evergrande contagion looks like?
Business & Technology
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A question we’re pondering at The China Project is, how would we know contagion when we see it? Whatever the answer, worrying signs are accumulating:
- Evergrande missed a third offshore bond payment yesterday. It’s on course to default in 11 days, and if it declares bankruptcy from there, investors could be left with some 10% of what they’re owed.
- Other developers caught the disease: Modern Land sought investors’ permission to delay a dollar bond payment due this month, and Fantasia Holdings Group missed a $205.7 million bond payment last week.
The context: In August 2020, Beijing announced “three red lines” marking debt limits on developers’ balance sheets. A Financial Times analysis found 14 of China’s 30 biggest developers violated at least one rule as of June, limiting their ability to borrow more. Expect to see more big fish caught in the debt dragnet.
- The banks aren’t safe, either: Regulators just doled out the heaviest fines ever on private banks for failing to control risks when giving out loans.
- One city isn’t worried: Harbin actually wants to heat up its housing market. It’s easing rules on developers’ spending and offering cash to entice young homebuyers.
Also relevant: For some reason, ByteDance decided now is a good time to get into real estate (and the perfume business): it just got a broker’s license to rent out high-end properties.
