Chinese nightmare

#china is going through a real estate nightmare. This week, #evergrande, one of the biggest real estate moguls in China, declared bankruptcy, after several months doing adjustments and negotiations. Over the last 25 years, only #spain had a similar dependence (27%) on #realestate during ‘06-‘07 crisis, and it completely changed the banking sector, which was on the brink of failure. Chinese banks are the biggest in the world, and it’s highly likely they’re going to go through mergers and restructuring to clean up the inventory of vacant properties. It will have a negative impact on its #gdp, and it will take even more time than similar past crisis, because it will be very difficult for external demand to come in and help with the restructuring. Local #highyieldbonds are trading at distress levels, which indicates that Evergrande will not be an isolated case. If the deleveraging follows the same path it took during the Spanish crisis, and the sector dilutes itself from 30% to 20%, Chinese gdp could be cut in half, and it’s already translating into yuan weakness and it could even lead to social unrest.