After real estate giant Evergrande announced three days ago that it might not be able to pay a $400 million maturity on Dec. 7, the Chinese communist regime increased the money available for loans by $190 billion.
In this case, Evergrande could access that fund to alleviate heavy pressures from creditors of its massive debt, which simultaneously threaten the Chinese Communist Party (CCP) economy, AP reported on Dec. 6.
After Evergrande’s gloomy announcement, stocks were mostly down in Asia during the next trading day. But the subsequent CCP offer is interpreted as a protective signal to investors and the public.
In this sense, while the People’s Bank of China is compelled to help Evergrande, it also seeks to curb this company’s extreme and even reckless indebtedness and its peers in the sector.
Therefore, economist He Fan from the HSBC Business School of Peking University said: “The company should be punished.”
The central bank also accusingly stated that these problems are due to Evergrande’s “mismanagement and blind expansion” on Dec. 3.
While these outstanding payments may not appear to be that high, the default could unleash an avalanche of billions of dollars in collections.
The apparent indiscipline of borrowers and investors in excessive borrowing has gradually increased. Thus, total corporate, government, and household debt rose from 270% of annual economic output in 2018 to nearly 300% last year.
The illiquidity that Evergrande is going through is not unique. Fantasia Holdings Group warned on Oct. 5 of the inability to pay $205.7 million to bondholders.
Similarly, Kaisa Group Holdings Ltd. said last week that it would also be unable to pay US$400 million due on Tuesday on a bond.
The difficulties that the real estate giant has been experiencing for months due to its massive $310 billion debt threaten to weaken the Chinese loan markets and cause a global catastrophe.
Analyst and journalist Cesar Sachetti commented on this case: “We are witnessing to a collapse that I believe is happening for two reasons. The first is that Chinese economy has always been founded upon the shaky grounds of financial debt”.
He adds: “The second is that there has recently been a divorce between the Chinese Communist dictatorship and the Western financial power.”
He continues to judge that “China’s economy will crumble. Wall Street and London this time won’t bail them out. This time China will go down. The dragon is headed towards an inevitable decline.”