Chinese Property Developer's Bankruptcy Threatens Economy

[Tomconroy]

The imminent collapse of Chinese real estate developer Evergrande is making investors wonder if it is a Chinese 'Lehman Brothers'. Evergrande is a real estate developer owing upwards of $300 billion dollars and will soon be unable to meet it's debt obligations. Speculation that the collapse of Evergrande will flood an already depressed real estate market with 1.4 million individual properties under construction. Many of these units have been prepurchased by individual investors.
It is estimated that real estate prices are already down 20 percent over the past year. Citizens in China have been encouraged for many years to nvest much of their wealth into housing with the assurance that prices could never go down.

https://finance.yahoo.com/news/china-nightmare-evergrande-scenario-uncontrolled-160000957.html

I have been reading for years about the eventual collapse of the Chinese real estate market. Evergrande is not the only developer in trouble. It does sound a bit like the US in 2008.
The collapse of Evergrande could effect wide deaths of the Chinese economy:

https://www.cnbc.com/2021/09/17/china-developer-evergrande-debt-crisis-bond-default-and-investor-risks.html

The collapse of Evergrande and it's effect on the Chinese economy is being widely covered in the financial press:

https://www.cnn.com/2021/09/17/investing/china-evergrande-group-debt-explainer-intl-hnk/index.html

George Soros warned last week that the collapse of Evergrande could cause the Chinese economy to collapse

https://www.nytimes.com/2021/09/10/business/evergrande-debt-crisis.amp.html

[Kaleva]

1. I've also been reading recently about how the Chinese real estate bubble could collapse

Chinese real estate developer Evergrande is a familiar name. Employees and suppliers haven't been paid.

"As China Evergrande's debt crisis deepens, unpaid small business owners speak of despair"

https://www.reuters.com/business/china-evergrandes-debt-crisis-deepens-unpaid-small-business-owners-speak-despair-2021-09-16/

"Evergrande Group is the most indebted real estate developer in the world. According to a financial report, as of the end of June this year, Evergrande’s interest-bearing liabilities reached 571.775 billion yuan ($88.69 billion), of which about 240.049 billion yuan will become due within one year. Several of the firm’s construction projects have been suspended due to project payments in arrears and other reasons.

Since the beginning of this year, Moody’s and other international credit rating agencies have downgraded Evergrande and its subsidiaries three times. Judging from Evergrande’s large debts, a large number of investors and more than 160,000 employees, the public is concerned about the impact on China’s economy if the company goes bankrupt."

https://pandaily.com/china-evergrandes-shenzhen-headquarters-blocked-by-investors/

[Klaralven]

2. To equal Lehman, there would have to be a big pile of hugely leveraged derivatives

The 2008 situation was caused by the vast accumulation of things like credit default swaps, etc. It's not clear whether there is an equivalent pile of derivatives related to Evergrande debt or Chinese debt generally.

I think China will let Evergrande collapse, if for no other reason than to instruct Chinese investors on how capitalism works. I doubt that is will cause a cascading collapse in China. The government will simply tell other Chinese institutions to eat the losses and cook the books. It might cause a collapse in Hong Kong and a lot of pain for foreign investors, but they are unlikely to care about that. If some western bank collapses because they have been writing derivatives on Evergrande debt, they are on their own.

[jmbar2]

3. I wish we would somehow import a bunch of that overbuilt housing

We need new housing in the US!