Massive overleveraging resulted in a partial collapse of the stock before the government quickly intervened to "save" it, effectively kicking the can down the road and leaving offshore bond holders as bag holders.
Meanwhile, "healthy" developers, homeowners and the real estate market as a whole, both in China and beyond, will apparently continue to be artificially propped up in order to keep the Ponzi scheme markets above water for a little while longer.
Top financial regulators in China were reportedly deployed to help synthetically ease credit for home buyers there, as well as to give the property sector another "hit" of fiat cash. The Chinese government also bought out part of Evergrande's stake in a struggling bank in an effort to keep the entire leaky dam from bursting, so to speak.
Over five days, China's central bank pumped 460 billion yuan, or nearly $100 billion, into the system to ease liquidity. What this will effectively do is keep the bubble from popping, though there is still nothing to stop it from deflating in slow-leak fashion.
"The first obligation is going to make sure that home owners who bought those homes take delivery and are made whole," announced Marathon Asset Management chief executive Bruce Richards, whose company started buying Evergrande debt last week.
"At the very end of the pecking order are offshore bond holders."
Stopping short of directly bailing out Evergrande, the Chinese government is reportedly doing everything it can to "ring-fence" the company, which has become something of a scapegoat for ongoing global market instability.
The truth is that the markets at large are massively overinflated like never before in history – not just in China but also in the United States. The constant printing and injecting of fiat currency into the markets has kept the markets pointed upward while greatly diluting the money supply, which is why we are now seeing looming hyperinflation on the horizon.
The Wuhan coronavirus (Covid-19) is another convenient scapegoat that politicians are blaming for everything teetering on the brink. It is just another excuse that the powers that be are using to explain away the fiat fiasco they have created, and that will eventually manifest as a total collapse.
Is Evergrande the "black swan" omen, the first domino to fall? Possibly. It is China's largest developer, after all, despite accounting for a mere four percent of sales in the country.
According to Harvard University economist Ken Rogoff, a run on property firms in the wake of a total Evergrande failure threatens to destabilize nearly 30 percent of China's economy. Recognizing that many foreign markets are also tied to the scheme, the ripple effect would likely affect the entire global economy.
During the first half of 2021, 12 different real estate companies reported bond defaults due to all this. That amounts to 19 billion yuan, according to Moody's Investors Service.
"China also faces a potential backlash from the 1.6 million home buyers who put deposits on Evergrande apartments that have yet to be built," The Strait Times reported.
"Getting those projects completed would help avert the type of social unrest sparked last month by retail investors demanding payment on some 40 billion yuan in Evergrande high-yield investment products."
The Chinese government has made it clear that its own population will be taken care of first, leaving offshore bond holders with nothing. According to James Feng, a founding partner at Poseidon Capital Group, it is "highly likely that Evergrande's offshore bond holders will be wiped out."
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Sources for this article include: