In China, two major interest on debt repayment delays and bankruptcy spooked markets. However, this is not yet an Asian contagion.
Zhongrong International Trust missed payments to investors. It casts doubt on China’s $3 trillion finance sector. The bank was in decline for many years. This accelerated during the Covid lockdown.
China’s banking prospects are falling as the real estate market worsens. Country Garden, which has less debt than Evergrande, has more projects. It faces a debt default.
On Aug. 18, China Evergrande sought Chapter 15 protection as it restructured its $32 billion debt. Nearly a year after it halted trading, the real estate firm had filed its annual report for the last two years. Shares resumed trading.
The Chapter 15 filing is equivalent to Chapter 11 bankruptcy, except it applies to foreign firms. Investors who bought China technology ETFs like KWEB or China Large-Cap ETF (FXI) could face more losses from here. Many Hedge funds already dumped their positions in the country. They did not want the headache of equity exposure to the volatile government.
China is raising tensions with Taiwan, which will drag the U.S. into the conflict. Instead of mending relations and strengthening trade, China is inciting Europe and U.S. firms to close their respective manufacturing ties with it.
China does not have a contagion. But be wary of exposure to the country.
