Last week, EverGrande officially defaulted. The Ponzi-scheme run property developer avoided default a few times before that by paying interest due at the deadline. This time, the firm did not pay. It issued no press release to explain the firm is in default.
China will not save EverGrande because it refuses to set a precedent for saving other troubled property firms. The government will let foreign investors lose most, if not all, of the debt. Domestic investors may get paid back some of their principles in the next few years. The government’s primary concern is holding EverGrande to its property development projects.
The CCP must avoid an uprising at all costs. With over a million units of unbuilt properties, people could protest. They already gathered at EverGrande offices a few months ago. The property owners may complain to the government, who will not do anything.
This sensational bankruptcy is a non-event for markets.
The government must diffuse rampant property ownership speculation. It needs property prices to fall to affordable levels. Its people would have staged the “lying flat” protest in greater numbers. This is a movement that protests the high expenses for home and living.
Chinese stocks like Alibaba (BABA), JD (JD), and Baidu (BIDU) have already fallen. This is partly due to the property crisis. Investors should continue to avoid stocks in this region.
