Chinese local government investment vehicles owe $8 trillion and are big dollar bond issuers. They are highly exposed to Beijing’s real estate crackdown and broader economic stress.

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What’s it going to take for these state-owned investors to default? Are there triggering points on the horizon we should look out for? Or will this be a slow burn for a couple years?


If people lose money, they lose faith in the system. That’s what the CCP fears the most, so will always have a scapegoat for any situation. If one execution isn’t enough, there can be many. Eventually that won’t be enough and large shifts in power will occur.


I posted this a while ago in the Evergrande thread. This has the potential to be the biggest story in economics for over a decade: >Everyone is watching the nascent real estate bubble (r/REbubble) in the US, but we will be lucky if the big fat festering bubble in China doesn’t spread into international contagion. >Not only are there the obvious financial issues with developers like Evergrade, Kaisa, et. al., There are severe structural problems extending deep into the Chinese political system that could even be potentially destabilizing. Not only do you have 70%+ of Chinese savings trapped in this bubble, you also have the issues with shadow financial products (WMPs) and deposits brought to light by Evergrande. This could, and already has to a limited extent, result is mass social unrest should a 2008 or worse situation materialize. >To make matters even worse, most local government funding is derrived from land sales which have all but ground to a halt. Most Chinese government debt is owed by these local government entities and attempts to institute a property tax have this far been fruitless. You have to wonder if the solvancy of certain government entities in China could be tenuous. Again, the implications of this are huge. Will it collapse other state owned enterprises that also tend to be owned by local governments? Will this result in mass unemployment on top of the potential WMPs, loss of savings, and undeliverable unit issues? >Finally, consider the implications if a political crisis were to transpire from all this. What happens if millions organize in the streets? How does the CCP react? Do they slaughter millions of civilians? Do they roll out the tanks? What happens if there were, say, a general strike of tens or hundreds of millions of Chinese or something like that? We all saw what covid disruptions in China did to global supply chains. Even short lived political unrest in China would potentially bring the global economy to it’s knees in a way that would make the current issues look like a joke. >The worst part of all this is that there is no data. We have no idea what’s going on in China. I would actually posit that the CCP itself might have a very limited understanding of what they are dealing with here. This whole situation is on a knife edge and I don’t believe the party line that they have it all under control. Not for one second.