Have the Chinese found a secret sauce that enables them to transcend economic reality, or have the merely blown up enormous bubbles across their economy with debt? From MN Gordon at economicprism.com:
Up until the Evergrande Group began stiffing creditors, Xi Jinping had it made. But being a communist dictator is serious business. And when the Ponzi finance structure underlying your country’s second largest property developer begins cascading down it’s no laughing matter.
One of the gravest moments for any communist dictator is when his nation’s fortunes deviate from the course of the five year plans put in place to rule over it. Playing god to 1.4 billion people only halfway works, so long as the people’s reality somewhat parallels the official communist party line. Otherwise, force and fear are required to maintain the lies.
“A man’s heart deviseth his way: but the Lord directeth his steps,” noted King Solomon (Proverbs 16:9). The good Lord, in heaven above and on the earth beneath, has a keen sense of humor; particularly, when serving up a slice of humble pie.
Xi Jinping, through happy accident, timed his entry into the world stage most perfectly. A 20 year economic boom had taken the People’s Republic of China to a new place of global prominence. Yet rather than basking in the glory of his predecessors successes, Xi took to flexing his muscles abroad, and censoring and surveilling his citizens at home.
This summer Xi and the Chinese Communist Party (CCP) initiated a regulatory onslaught against Chinese technology companies like Alibaba, Tencent, and Didi Global. Now property developers are suffering the CCP’s wrath, with the imposition of new debt limitations – called “three red lines”.
Evergrande is one of many leveraged developers in China. But it happens to be the most overstretched, and the first to have its cash flow come up short of its debt obligations. More developers will follow.
