September 23, 2021

BOOM: Evergrande crashes as China dumps ‘build, build, build’ playbook.

Evergrande is proving to be the first big victim. As the company falters, its undoing raises a fundamental question for the world’s second-largest economy: has China’s property-driven growth model – the global economy’s most powerful locomotive – run out of road?

Yes, says Leland Miller, chief executive of China Beige Book, a consultancy that analyses the economy through proprietary data. “The leadership in Beijing has been more worried about Chinese growth than anyone in the West.

“There is a recognition that the old build, build, build playbook does not work any more and that it is actually getting dangerous. The leadership now appears to be thinking that it can’t wait any longer to change the growth model,” Miller says.

Ting Lu, chief China economist at investment bank Nomura, says he does not expect Evergrande’s woes to trigger an economic collapse. But he believes Beijing’s attempts to transition from one growth model to another could significantly depress annual growth in coming years.

Two thoughts come to mind.

The first is that the post-Tiananmen deal was that mainland Chinese would trade any hopes of political reform in exchange for ever-increasing prosperity.

The second is that authoritarian regimes often look invincible until shortly before they unravel.

Update: More here from Battleswarm Blog.

Not only is Evergrande possibly facing complete liquidation, but word came down that the company might make payments on Chinese-owned debt, but stiff foreign debt holders.

But the word this morning is that the Chinese government is now telling them to avoid default on dollar-denominated bonds. After all, if investors worldwide decided that all Chinese debt was potentially toxic, that would leave connected Chinese communists in a world of hurt.

What’s that old Chinese curse about interesting times?

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