His first speech in China after becoming president was critical of the Soviet Union for being soft on perestroika. They should have crushed it when they had the chance, he said. That was a red flag to us that he was going to be more hardline than people thought. He went on to do an anti-corruption drive, which people dismissed as a typical settling of scores that Chinese leaders do. But it actually extended beyond that. A couple of years later, he began talking in puritanical terms about social issues.
Again, that was different. Nobody had cared about that stuff for 20 years. Next, we had the book collecting his speeches and writings, which people could be seen carrying around. He started showing up in military events dressed in Mao jackets. We noticed all this, but the real switch occurred in when he started going after celebrities like Jack Ma [co-founder of Alibaba].
At that point, it was clear that this president was not stepping down at the end of 10 years. In , all of this exploded into the open. Redistributing wealth to the masses. Going after other leaders. Overlaid on top of this is the Evergrande saga. How did things get so bad? It was an attempt to deleverage the real estate developers. I always joke that when you have an investment-driven economic model, you know your annual GDP on January 1 st of that year, because you can stick shovels in the ground to make your growth numbers.
As we now know — and the Wall Street Journal just had some phenomenal numbers in a recent piece — that real estate construction is now larger than it was when he took office. They went from hitting the breaks to hitting the accelerator. The problem is that these companies are so much bigger than they were in or Can you bail everybody out?
In the case of the developers, you have an additional problem. The biggest amount of liabilities is not necessarily to banks and bondholders. You go get your financing and your mortgage proceeds pay for the rest of the house or the apartment. In China, you pay upfront. You are extending the developer a loan. These numbers are big, and Evergrande is not the only one. There are a handful of developers that are missing interest payments and have their bond prices reflecting distress.
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World Asia World markets Print article. Harriet Agnew. Updated Sep 23, — 9. Save Log in or Subscribe to save article.
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