China on the brink? 📉

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China on the brink?

On top of a 14% export slump and consumer price deflation, China’s indebted real estate sector is sinking further into the mire. Evergrande filed for bankruptcy in the U.S. while a real estate trust, Zhongrong International, has missed paying out on its outstanding high yield debt repayments. Country Garden, one of the biggest property developers, missed two payments on its dollar bond issues. Could this be the start of an inevitable financial crisis or will the CCP (Chinese Communist Party) bail out the sector to save the economy… and its credibility?

Chinese banks hold over $3 trillion in property assets while property developers have an estimated debt at risk of default totalling $1.75 trillion. And then there are China’s local governments which were encouraged to borrow for major infrastructure projects. They may be sitting on as much as $8 trillion of debt!  This is a tick-tocking time bomb that needs defusing. Central government could fire up a spending program to encourage investment at home. Or, another possible outcome is that China could end up selling more of its US bond holdings to redirect funds homeward, bringing turmoil to Wall Street as bond yields spiral upwards to find new buyers. It would mean that stock investors would redirect their money to attractive high yields but cheaper priced government bonds.

Either way, keep an eye on Asia. China is trembling at the knees just as another BRICS member is reaching sufficient velocity to reach for the economic moon… India! 

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I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.

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