What the collapse of a company owing $300 billion means for the world
What the collapse of a company owing $300 billion means for the world
Evergrande, China's biggest real-estate developer, is being liquidated. It has assets worth about $245 billion, but owes about $300 billion.
A Hong Kong court ordered the liquidation of China Evergrande, the world's most indebted property developer.
Evergrande has assets of about $245 billion, but owes about $300 billion.
Its demise is a "controlled collapse," but still raises systemic risk and will hurt investors, says an analyst.
I am somewhat concerned about the global implications of this. Evergrande is a symptom of a deeper malaise in the Chinese real estate market.
is a symptom of a deeper malaise in the Chinese real estate market.
Its even worse than that because retail investors in China use real estate as their primary investment vehicle. Where as someone in the USA might put money in a 401k for retirement or a brokerage account for investing, those don't exist (in the reliable way) in China. So many regular people's nest egg is tied up in real estate. So this isn't just the real estate market getting wiped out, its millions of working class people's life savings just evaporated.
Goddamn. Thanks for the perspective. This is much more horrible than I thought. It sounds like vulnerable working class people are going to be hurt the worst.
That sounds like potentially violent "protests" in the future.
How did it get so bad? Is there a tl;Dr anywhere that explains it fully?
This is from Economics Explained two years ago. It basically explains the whole thing, but it isn't really a TLDR.
https://www.youtube.com/watch?v=lbH_8Nj51HU
If that's too long, Peter Zeihan recently gave a fair summary in a six-minute video.
I think it’s something like: CCP controls what investments citizens make. CCP wants to expand infrastructure and build up a lot of properties. The company gets overfunded. CCP also implements one child policy for like, idk four decades. Not enough people to live in all the properties they built that never relied on market demand.
It's a ponzi sceme with extra steps
Maybe they bought too many houses in the US and can’t rent them for 5000/m
Does it hurt anyone other than investors? Because I could not possibly care less about investors.
That's the problem with investors, if they're not making more money than last year they find a way to fuck the rest of us. Either they pressure companies to lay off workers, they pressure the government to cut taxes, lower pesky labour and environmental regulations, or just handover cash in the form of a subsidy or bailout.
Either way they get our money somehow and enshittify our lives. If there's no hell we'll need to invent a special kind of justice for these people.
I don't know if I can really blame the investors themselves for enshittification... I mean, sure, it's done for their sake but is it their call? They want a return on the investment, but how much say do they have in the companies that actually do the shitty things?
Then again if I gave money to someone and said "go bring me some milk" and they got me milk, but also murdered everyone they saw along the way, I would definitely not be hiring them again and probably could be in trouble despite not asking for or wanting the murders. If the investors don't pull out when the company is doing shitty things to make them money, they are definitely evil themselves.
Probably won't hurt the investors, they'll get paid. But all the individual contractors who worked for the company are very unlikely to actually see payment.
The company owes $300B on $245B of assets. Unsecured creditors are among the last on the list to be paid back, and at least some of those are contractors who did work for the company and haven't been paid yet.
Hurts the customers, like lower-middle class people that put their life savings down to buy a home and never got one.
I care a lot about what happens to them. I hope there is a hell just so they can burn in it.
"investors" in this case include middle class Chinese citizens, I think that's worth caring about
The chickens are finally coming home to roost with the decades of bullshit in commercial real estate worldwide without proper regulation. This isn't unexpected to anyone with half a brain looking at the industry, which means it obviously completely blindsides major institutional investors who never even consider anything more than quarterly numbers in a vacuum. The pandemic exposed the systemic issues so quickly they couldn't just brush it under a rug with misinformation.
I'm not saying it's ideal or healthy.
But I don't see how the west would have an upcoming issue with real estate.
People are still willing to pay increasingly large amounts of money for real estate and when locals can't afford it they just bring in immigrants.
I'd be interested to know how the real estate valuation in the west is going to decrease.
Considering quarterly numbers in a vacuum… sounds strangely familiar. Feels like we’ve done this many times before, but we still keep on repeating the same mistakes.
The thing with debt is that every time someone (or something) that owes a world-changing amount of it suddenly goes kaput, it becomes pretty clear how much of the debt system is made up.
If Evergrande owes banks, they'll just write off the debts and pretend it never existed. If they owed companies, they'll recoup "lost" money from assets and loans from someone else.
Most of the debt system is arbitrary and totally nonexistent. This wont be the collapse of the chinese economy like ""china waters"" claimed it would be; for a capitalist country masquerading as a classless economic system they're doing capitalism a lot better than most of the world right now.
They just write it off 😃
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Until it gets down to paying small businesses and individual contractors, then all of a sudden the money is all gone and I don't even recognize you, señor.
and will hurt investors
breaks out world’s tiniest violin
Investors can go suck it, I’m in the corner of the working class.
Even here the system will be rigged in favor of big investors vs small investors vs people who bought an asset and will get squat. Because working class who gave them money upfront to purchase an appt or house will be the last one in the collectors queue.
But your response is accurate to the "claim" that investors will be hurt. Media is so messed up that they don't even mention the customers that will get the worse impact than investors.
I don't think you quite understand that in this case, it's millions upon millions of working and middle class people who put most of their life's savings into this.
That's literally what the return on all the other investment is for: the assumption of risk.
I guess it's the same shift in mentality as the credit card processing machine asking for a tip for everything by default.
So you're in the corner of the working class, and playing the tiniest violin at their suffering?
Are you sure you just an awful person, or do you not read?
Oh boohoo, did someone who enthusiasticly supports capitalism play and loose? Good, welcome to the extreme shittiness of a global free market.
Tencent next please.
Quickly before they fuck up D&D even further
That wasn't real. It was someone misunderstanding a licensing proposal.
Will this affect pensions funds? Do they typically use these types of investments?
Probably not very much.
- Unless I’m mistaken this is a Chinese company trading on the Chinese market. Unless someone was specifically looking to be in the Chinese real estate market (which was very hot about a decade ago iirc), they wouldn’t have a lot of exposure. I think the Chinese market has been in the shitter recently, so I’m not sure who’s holding them right now
- Retirement funds (pension funds and 401k target date funds, which is where most of the money is these days I believe) skew very conservatively. They spread their money across markets (so like 5% tech, 8% utilities, 7% municipal bonds, whatever). They might have a chunk in a bucket of “foreign” markets, but even those would be spread across multiple industries. I’d be surprised if any of those funds had more than a fraction of a percent in a single company like this.
- Target date funds get their name from the fact that they’re investing with the expectation that you’ll retire at 65, and the closer that date gets, the more conservative the investments become. People who are retiring soon will have even less exposure to this, and people who are retiring in 20 years will never know this happened.
The real question is whether there’s going to be a ripple effect but it’s not looking like that yet.
It trades on Hong Kong Stock Ex so not a traditional Chinese market, but technically a Chinese one nonetheless. Honestly considering how many tech stocks are traded in retirement funds today, Evergrande probably once seemed like a relatively conservative investment.
Rule of thumb is about 1/3 go to foreign investment for a typical retirement account in the US. But you're right, it should be a very small part of the average portfolio.
Yes, both stock and bonds. But the stock and bonds have been trading near zero for a couple years so the damage was done in '21.
Finally it's only been, what, two and a half years since they went bankrupt?
This is the best summary I could come up with:
But there are still concerns about how Evergrande's fallout will affect the broader market, since the property sector contributes to about one-quarter of China's GDP.
The court has appointed Alvarez and Marsal as liquidator to manage the company, Evergrande said in a filing to the Hong Kong Stock Exchange.
"Onshore stakeholders are busy working to ensure home purchasers will eventually receive the homes they have paid for one way or another, but retail 'mom and pop' investors in the company's offshore securities will be facing even further uncertainty and delay which would likely continue for years," Daniel Margulies, a partner at Dechert, a law firm that specializes in restructuring in Asia, told BI.
In July, Evergrande cited an analysis by Deloitte that estimated a recovery rate of 3.4% on its debt if the company is liquidated, per Reuters.
Debtwire data showed 32 developers in China managed to complete 42 restructuring processes covering 104 tranches of offshore bonds worth $33.1 billion from July 2021 — around the time the current property crisis started — to the end of October 2023.
"Evergrande's liquidation is a sign that China is willing to go to extreme ends to quell the property bubble," Andrew Collier, a managing director at Orient Capital Research, told Reuters.
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They should start a couple utopian city experiments in those ghost suburbs they built way outside cities. Offer housing and a vision and put some academics in charge so we can learn something.
The problem is that those ghost cities aren't actual cities. The housing is largely worthless and uninhabitable, crumbling before it's even finished, often only "finished" to look that way from afar. You can't actually do anything with it other than tear it down.
Think of how U.S. conservatives are disgusted by any idea of a progressive experiment. That is how the conservative Chinese gov't would respond as well.
Won't someone please think of the investors!
Let's see if China have a capitalism with American characteristics and is going to rescue the company with public money, or if they're going with a more theorical one and left it going broke.
I think China has complete control of many of their companies so it’s a tad bit different than us.
Thats not what liquidation means.
To turn over to a trustee one's assets and accounts, in order that the several amounts of one's indebtedness may be authoritatively ascertained, and that the assets may be applied toward their discharge.
In America, the company would be handed a fat check.