That does not mean that China’s government will do nothing. Its financial system does not operate in the way those in the West do. All of its major banks are state owned. The government can impose its own controls and rules as it sees fit and simply “defy economic gravity” – precisely why theses of its collapse have been so frequently wrong.
The government may let the firm itself die, but step in to pay off its creditors and investors, because in no circumstances does China want to be branded responsible for a global financial crisis or meltdown, not least in this new era of scapegoating Beijing for everything. There are many solutions to this crisis, but China has seemingly made a political decision that the status quo cannot continue; firms fuelling themselves on debt like this cannot go on as normal without serious reform.
RT
https://www.zerohedge.com/markets/futures-crypto-surge-evergrande-make-thursday-interest-payment-pboc-injects-most-liquidity
ReplyDeleteZH reporting only “foreign investors” (ie USD lenders) going to get screwed…
How is this not another “Lehman”?
Firm is being denied additional USD credit due to Fed surging USD reserve assets at USD lenders… same exact thing…
https://www.bloomberg.com/news/articles/2021-09-12/evergrande-haircut-of-75-is-now-a-base-case-for-bond-analysts
ReplyDelete75% of the 300B they have issued is 225B..
That’s about 20% of S&P 500 earnings… I guess not the end of the world but pretty substantial…
From ZH article “ But that wasn't all: in a show of monetary forice, PBOC boosted its daily liquidity injection to 120 billion yuan - the biggest liquidity injection since January - and follows two 100 billion injections.”
ReplyDeleteNot helpful…
Maybe it is as simple as China understanding the nature of their fiat Yuan. Secretive as they are.
ReplyDelete@ hoonose
ReplyDeleteThere are two schools of economic thought in China, neoliberal and Marxist. The PBOC is run by Western-trained neoliberals. The CCP is controlled by Marxists.
I know of no evidence of the direct influence of MMT on the policy of either, although the Marxist branch has used fiscal policy effectively in the past to shape the economy and address crisis and this is the faction that holds power.
Knowledge of MMT does exist in China through. Some MMT economists and allied economists like Michael Hudson have explained it there.
Conversely the PBOC acts like other central banks, as does the Central Bank of Russia, since both are fun by neoliberals. ZH focuses on the PBOC as through that really matters, but the PBOC is not in charge of anything but monetary policy and financial regulation. The PBOC is not politically independent.
The Marxists control 1) the financial system where banking is basically state banks, 2) fiscal policy, and 3) the commanding heights of the economy.
Most of the commentary emanating from the West is based on neoliberal assumptions, which is why the predictions seldom if ever pan out.
MMT points out that China is not sovereign in its currency in that it runs a peg against the USD and allow its firms to borrow in USD. This requires China to hold a large amount of USD in reserve to avoid a squeeze. China has well over a trillion USD in treasuries in its account at the Fed which it can draw on for clearing international obligations.
Bail out, followed by the Jack Ma treatment.
ReplyDeleteYeah all the evergande people goin to be reappearing with a yellowish hue… down half a liver….
ReplyDelete