Evergrande & The Chinese Economy

Patrick Boyle On Finance

Patrick Boyle

Investing, Business

4.9 • 320 Ratings

🗓️ 23 September 2021

⏱️ 16 minutes

🔗️ Recording | iTunes | RSS

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Summary

Send us a textThe financial woes of Evergrande the once-mighty Chinese property developer highlight a showdown between two competing objectives for China's Communist Party. They aim to force China's private sector away from speculative and risky lending practices while avoiding a financial meltdown and the collapse of the property sector, in which more than 70% of the nation's urban wealth is locked up.Patrick's Books:Statistics For The Trading Floor: https://amzn.to/3eerLA0Derivatives ...

Transcript

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0:00.0	Hello and welcome. You are listening to Patrick Boyle on Finance, a podcast exploring ideas from quantitative finance, examining events occurring in markets right now and financial history to see what lessons can be taken away, including interviews with some of the most interesting people in the world of finance. To learn more about the podcast, visit onfinance.org.
0:27.5	Welcome back, everyone. Another piece on Evergrand. I won't dwell too much today on the details of
0:34.1	the company, basically just because I've covered it reasonably well over
0:38.2	the last few days. Today I want to focus in on how this collapse ties into the overall
0:44.0	Chinese economy. We're going to examine how the rise and fall of Evergrand is tied to certain
0:50.0	economic choices made by policy makers over the last three decades. We'll wrap up with a piece
0:56.3	on how a typical bankruptcy works and how this one is likely to be quite a bit different.
1:02.5	Evergrand, as I'm sure you know by now, is China's second largest property developer,
1:08.2	whose slow collapse has transfixed the markets over the last few weeks.
1:12.8	Evergrand is the most indebted property developer in the world, and its on-balance sheet
1:18.2	liabilities amount to nearly 2% of China's annual GDP. Its off-balance sheet obligations could add up to
1:26.3	as much as an additional 1%.
1:29.3	This on its own is pretty big.
1:31.3	Some of the numbers that we're looking at are huge, but ordinarily it wouldn't be such
1:35.7	a big deal if it wasn't for the huge amount of leverage in the overall Chinese economy.
1:41.5	I discussed this chart in yesterday's piece from the Bank for International
1:45.9	Settlements, showing that Chinese businesses have almost twice the leverage of American businesses.
1:52.8	The Chinese economy has been plagued by debt problems and what we call moral hazard for
1:58.3	some time. Policymakers have been on and off attempting to reduce
2:02.9	this and these attempts have to a certain extent played into the collapse of Evergrand. It's quite
2:09.4	a sticky situation for them to sort out right now. Okay, so there is and has been for some time
2:15.9	a problem with excessive leverage in the Chinese economy.
	...

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