China Defaults Coming, What Will Xi Do?
China's economy is in a heap of trouble. Fiscal stimulus tsunami or epic fallout?
Dear readers,
We pause our US-centric macroeconomic analysis for a look at China’s economy, and what we see is not exactly pretty. In fact, when looked at with a critical eye, what’s happening right now in China is downright scary. That is, of course, if you’re looking at it from Xi Jinping’s perspective.
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Small defaults, big problems
We’ve written about China’s property sector a few times over the course of the past several months—overinvestment, sponsored by the party and local governments, has led to unserviceable debt for many of the country’s largest real estate developers. More are experiencing debt turmoil:
It’s not just Country Garden. According to yesterday’s Reuters article, “State-backed Sino-Ocean Group is seeking to extend some offshore bond payments, while Greenland Holdings defaulted on an amortization payment. A unit of Dalian Wanda Group, the largest commercial property developer in the country, has also missed a dollar coupon payment, though Greenland and the Dalian Wanda unit managed to make the payments later, avoiding official defaults.”
Defaults in China? The answer is simple: stimulate growth by doing large construction projects. Right? Wrong.