THIS WILL END WELL: Can China contain Evergrande’s collapse?

The Chinese Communist party appears set to kill off its largest economic zombie, while gambling that it can control the fallout. Evergrande, the world’s most indebted developer, first defaulted almost two years ago, as China’s property bubble began to burst. It has since been able to stagger on from one crisis to another, while struggling to restructure its mountain of debt and sell its assets. Now even the CCP seems to have decided this is untenable. The problem for the party is that Evergrande is not the only occupant of China’s economic valley of the living dead, and the impact of its collapse may be impossible to control.

The signs of a final reckoning have been growing over recent days. On Monday, Hengda Real Estate, Evergrande’s main unit in mainland China, defaulted on repayment of a further $547 million of loans and said in a statement that plans to restructure its debts had ran into trouble because it was being investigated by the authorities. It was reported today that Evergrande’s billionaire founder and chairman has been placed under police surveillance. He is said to have stopped contacting staff and become inaccessible over recent days.

China’s financial press also reported that several current and former executives have been detained. This followed the arrest of executives at Evergrande’s wealth management unit and an appeal to the public to report any cases of suspected fraud. These investigations mean that the company is unable to issue any new debt, that its lifeline has effectively been cut. They are also a signal that the CCP is not only pulling the plug but is lining up scapegoats on whom the company’s demise can be blamed.

Evergrande’s collapse and its fallout is further proof that: China May Be Headed for a Lost Decade*.

Flashback to November of 2019: How to Conduct Business with Chinese Companies That See a Dark Future.

* Of course thanks to Bidenomics we may be as well.