Evergrande...22 Sep 2021 17:13
..fallout could be worse than Lehman for China, warns Jim Chanos
Crisis at property developer ‘symptomatic’ of broader woes in world’s biggest emerging market, says short-seller.
Evergrande’s crisis could be “far worse” for investors in China than a “Lehman-type situation” because it points to the end of the property-driven growth model in the world’s second-largest economy, said short-seller Jim Chanos.
“There’s lots of Evergrandes out there in China — Evergrande just happens to be one of the biggest,” Chanos told the Financial Times in an interview “But all the developers look like this. The whole Chinese property market is on stilts,” said the founder of New York-based hedge fund Kynikos Associates who is best known for predicting the collapse of energy group Enron.
Concerns over the world’s most indebted developer have sparked drops in global markets this week as investors worry about the potential fallout as the group struggles to meet a debt payment on one of its international bonds due on Thursday. Such a default, some say, could cascade across the broader Asian corporate debt market.
The real estate company said a domestic payment due on Thursday had “already been resolved” but provided no indication of whether it would pay offshore investors, which include several major international asset managers.
Investors broadly agree that Evergrande’s unravelling will not hurt global banks and investors in the way Lehman Brothers’ failure did in the financial crisis, because its international debt load, at about $20bn, is relatively small.
But its total liabilities stand at more than $300bn, due largely to creditors and businesses in mainland China.
Chanos is among those warning that the economic impact in the country from a wider series of non-payments could be severe.
“In many ways you don’t have to worry that it’s a Lehman-type situation but in many others, it’s far worse because it’s symptomatic of the whole economic model and the debt that’s behind the economic model,” the 63-year-old said.
Last year President Xi Jinping took steps to address years of chronic oversupply in Chinese property, and Beijing drafted new rules to constrain leverage in the sector, which directly and indirectly contributes 29 per cent of the country’s gross domestic product.
“If you try to deflate this bubble, it is fraught with risks,” said Chanos. “I don’t think they’re contagion risks. This is not a Lehman-type situation where there is contagion interbanks and intra-banks and everybody stops lending to everybody else. This is more a risk to the economic model because residential real estate is still such a huge part of GDP there.”
https://www.ft.com/content/0bf52d39-fd42-408f-aa85-52a4135de312
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