> While Evergrande is listed in Hong Kong, almost all of its assets and the vast majority of its more than $300bn in liabilities are in China.
> In theory, the ruling could pave the way for liquidators to attempt to seize control of some Evergrande assets in mainland China, since Hong Kong has a mutual recognition agreement on insolvency and restructuring that applies in some parts of China.
> However, it is not clear how far mainland courts will accept the Hong Kong winding-up order.
In short, this headline is wildly overstated. This is a minority jurisdiction that is overreaching. There is no way that Mainland Chinese courts will respect the decision. Frankly, I would say the same if a giant French property developer happened to be listed on the Amsterdam Stock Exchange. If a Dutch court ordered them to liquidate, I cannot believe the French gov't would allow it. (To be clear: I am not an EU hater here. Vice versa would also be true.)
My prediction: China with directly or indirectly nationalise Evergrande. Most bondholders (especially foreigners) will be wiped out. Most of the unfinished buildings will be completed in 2-5 years.
> China with directly or indirectly nationalise Evergrande. Most bondholders (especially foreigners) will be wiped out. Most of the unfinished buildings will be completed in 2-5 years.
I'm willing to take that bet!
My prediction, a bit different, not that much.
1) nationalized. Yes
2) foreigners will be wiped out. Yes.
3) Huge backlash and more foreign money will leave China
4) China will backtrack a bit to appease ( a bit, but not enough)
5) Most buildings won't be completed. China doesn't have the funds anymore to build property like x years ago. The elite already took out their money. Civilians lost their "investment" and won't buy real estate like they did in the past.
6) Property declines further. Others like Evergrande will fall.
7) property becomes "cheap" ( relatively)
8) population declines
9) property becomes even cheaper
... Etc
The thing I consider differently and shapes my narrative, is that it seems that China made a huge construction bet on population growth. And it seems that bet was wrong.
So they don't want to finish those buildings, since it would drive prices down quicker.
---
A lot of buildings were already abandoned and were never going to be build.
There's an elite group that can borrow money in China and they don't need much collateral for it. So they construct 25%, cash in and are gone. Perhaps this practice isn't common for Evergrande though.
But those buildings were abandoned because no one was willing to put in the 75% required to complete it ( which is a similar story, not the same though)
Source of this practice: a friend had to setup one of his client's division in China for a couple of weeks a couple of years ago.
> Most of the unfinished buildings will be completed in 2-5 years.
Many things wrong with that statement. Chinese local governments are overloaded with debt - 12.6 TRILLION https://www.reuters.com/markets/asia/china-orders-local-gove.... National government has refused to supply local governments with more money, in fact it has limited some local governments to what they can build. Local Governments have zero incentives to add more inventory to an already bloated real estate supplies. A lot of these unfinished buildings were left unfinished for a number of years, is already left to ruin, and unsalvageable. Tofu dreg building qualities means it's easier to demolish these buildings.
As I understand, most of the debt issued by local gov'ts is RMB-denominated. The PBoC can easily assume (large) parts of this debt without large negative economic impacts. Other countries have done similar in the past by creating "bad banks" that are financed by the central gov't or central bank.
How could central bank finance such a debt without igniting the inflation? Especially in a country with already expensive money and pretty large interest rates.
Central banks can print money. And most countries, even developing ones, can support more money printing than people understand. I am not advocating for crazy money printing, but printing 5-10% of GDP for a single year to clean-up a big financial mess isn't so bad.
Did you know that Indonesia has an explicit monetary policy to monetize a certain portion of their national debt each year? The finance minister (Sri Mulyani) is well respected, so foreign bond buyers were not upset by it. It did not "ignite" inflation. Also, look at quantitative easing by US, UK, EU, and Japan.
Quantitative easing in US, UK, EU, and Japan happened during the economy balancing on the brink of deflation. I.e. when capital from the developing world was actively escaping into the developed world, when the developed economies were bathing in cheap capital and firms could borrow at zero or even negative percent, and the economy grew massively and required quantitative easing for simply avoid inflation.
We can see how money printing works when the economy isn't growing respectively, the inflation hits as it happened in EU, US and Japan now.
> Did you know that Indonesia has an explicit monetary policy to monetize a certain portion of their national debt each year?
No, I don't. The only sources I found tell the opposite.
> While Evergrande is listed in Hong Kong, almost all of its assets and the vast majority of its more than $300bn in liabilities are in China.
> In theory, the ruling could pave the way for liquidators to attempt to seize control of some Evergrande assets in mainland China, since Hong Kong has a mutual recognition agreement on insolvency and restructuring that applies in some parts of China.
> However, it is not clear how far mainland courts will accept the Hong Kong winding-up order.
In short, this headline is wildly overstated. This is a minority jurisdiction that is overreaching. There is no way that Mainland Chinese courts will respect the decision. Frankly, I would say the same if a giant French property developer happened to be listed on the Amsterdam Stock Exchange. If a Dutch court ordered them to liquidate, I cannot believe the French gov't would allow it. (To be clear: I am not an EU hater here. Vice versa would also be true.)
My prediction: China with directly or indirectly nationalise Evergrande. Most bondholders (especially foreigners) will be wiped out. Most of the unfinished buildings will be completed in 2-5 years.