Time To Take Shelter
The past few weeks have had global investors glancing fearfully in the direction of China as it seems quite possible that this year could see the most extensive financial threats to global stability as its vast property sector woes continue and metastasize.
Late last week, Evergrande defaulted on $83.5 million of interest on a five-year dollar bond. It now has less than 30-days of grace to pay before the company is officially declared in default.
President Xi and the CCP are closely watching events to check for any spread of contagion, with the PBOC [central bank] already suggesting additional lending support. This is a precarious moment for Xi's and his recently proclaimed "common prosperity" edict, and any hint of favoritism by a Chinese Communist Party leader who publicly purports to create a more equal society while acts to bail out its billionaire chairman who for a long period of time has acted recklessly, creating unsustainable debt that could be argued only primarily benefitted himself.
Hui Ka-Yan, Evergrande's founder and Chairman with his 77% shareholding, has allegedly been paid $8 billion in cash dividends since its $9 billion listing in HK in 2009. It seems he is now playing the 'too-big-to-fail’ card, betting that the CCP simply cannot afford a Lehman-like disaster as Evergrande's market capitalization sinks below $4 billion.
While the majority of the $300 billion-plus of debt is owed to Chinese banks and Evergrande's prospective homeowners [deposits], global investors continue to fear collateral consequences on the entire Chinese real estate sector, where it's estimated a further 2.7 times Evergrande's problems presently exist among ten other property companies.
Finally, on this particular company, it should be remembered that the Lehman Brothers collapse had been in gestation for many months before actually succumbing on September the 14th, 2008.
Evergrande's shares closed Friday the 24th at 2.36 HK dollars during a volatile HK trading day between $ 2.30 and 2.64
Elsewhere on Friday, the 24th China announced its most far-reaching crackdown on Cryptocurrencies and mining with the most detailed and expansive measures involving every agency of Government, in a blanket ban on the entire sector, declaring all transactions illegal. This news precipitated falls across the industry of over 5%, with BTC nudging $41000 at one point.
Not for the first time, China has moved against Crypto, but it does seem to be Beijing’s most aggressive move since regulators turned their ire on the sector in 2013.
It's the same old story of the CCP being paranoid that its control and power over the country would be diminished by any relaxation in its grip over every aspect of daily life, but the excuse of preventing 'criminal activity' is its official reason stating; " the surge in usage of cryptocurrencies has disrupted economic and financial order, prompted a proliferation of money laundering, illegal fundraising, and pyramid schemes. Reducing China's carbon footprint is another reason muted given the extent of crypto mining in China.
The other story is that the Chinese State is preparing its own crypto, the Digital Payments System [DCEP] and the Digital Chinese Yuan [e-CNY], that would allow the CCP to collect data and keep surveillance on its citizens daily transactions and financial activities.
As of writing, BTC is trading at $42256, with Coinbase [COIN] closing Friday respectively at $233.