China’s debt bomb is about to burst – is that why the country is against Bitcoin?
Evergrande, the largest real estate developer in China, appears to be running out of $ 300 billion in debt. The question is, is Evergrande the only company in the industry with this type of debt? Or is that just a symptom of an infectious disease? And what does that have to do with Bitcoin? Is it the “Lehman of China” as some Bitcoin analysts suspect? Let’s look at the following article.
What we do know for certain is that “the major Chinese banks have been informed by the Housing Inspectorate that the Evergrande Group will not be able to pay the September 20th interest rate,” according to Reuters. The comment from Plan B shows the seriousness of the situation:
– PlanB (@ 100 trillion USD) September 15, 2021
On September 15, 2008, Lehman Brothers filed for bankruptcy.
“At the time of the collapse, Lehman was the fourth largest investment bank in the US with 25,000 employees worldwide. It has $ 639 billion in assets and $ 613 billion in liabilities. The bank became a symbol of the excesses of the 2007-2008 financial crisis, which was engulfed by the subprime crisis that swept the financial markets and caused an estimated $ 10 trillion in losses to economic performance ”.
Is China facing a similar situation right now?
Evergrande China on the verge of bankruptcy
On September 13, the South China Morning Post was cautiously optimistic about the situation. last name explain The root of the problem:
“Reports of the inability to pay contractors, attempts to change the timing of payments for wealth management products, and the inability to sell assets have led China’s central bank and regulators to step in to prevent a shock to the financial system.”
Big news at the time was that they “hired Houlihan Lokey and Hong Kong-based investment bank Admiralty Harbor Capital to assess capital structure, assess liquidity and mitigate losses”. And do you know what that means?
“Hiring such financial advisors means Evergrande has gone to extremes to list the assets they own, what they owe, and the best plans to save themselves,” said Lung Siu-fung, an analyst with CCB International.
Evergrande price chart on HKEX | Source: TradingView
Apparently the Chinese Evergrande was caught in an endless loop. The company pre-sold the apartments and used that money to fund other projects that also pre-sold the apartments and started the cycle again. Evergrande bonds are suspended and there is a chance they could be scrapped. The stock is near an all-time low and has lost nearly 80% of its value this year.
CNBC adds more information:
“The company warned investors about a default twice within weeks. On Tuesday, Evergrande said there was cross-default risk, which means that such risks could spill over to other related sectors. Evergrande’s home sales will continue to deteriorate significantly this month, adding to serious cash flow problems. “
Is It Possible That Evergrande’s Problems Are A Symptom Of A Contagious Disease? That’s a worthwhile question. Is China’s Real Estate Sector Really In Trouble? To answer, consider report from ZeroHedge:
“Country Garden, the country’s top-selling developer, is down 16% in the past two days while Gemdale is down 12% as the benchmark for Shanghai real estate stocks fell nearly 5% over the period, valued below book value . According to the news, Guangzhou R&F Properties fell 10.8% to its lowest level since December 2008, while Greentown China fell 9.1%. At this point one can confidently speak of a crisis. “
What does Evergrande have to do with Bitcoin?
China’s bitcoin reporting is not impressive. It is unthinkable to push yourself away from a leadership position in the most important industry of our time. Something has to be done. Discover the digital yuan. See ads for small hydropower plants. Discovered that China’s dominance on bitcoin hashrate waned before the ban. It seems to be called the new “China Model” as we reported last month.
Under Plan B’s original tweet, there are two attention-grabbing comments. Investor Preston Pysh feeling that this situation is “the predictable outcome of partial reserve banking: broken promises. It just depends on when and to what extent. “And the Bitcoin Archives said,” They knew this was coming. Maybe that’s why they ‘banned’ Bitcoin. “
Plan B replied confidently, “Yes, and they blocked all exits, that’s how the score is handled and they always do.” Not good for the people of China, but in general, Bitcoin is bullish.
In short, China seems to have foreseen this dire scenario. They know the crisis will keep coming and they ban bitcoin mining to scare people not to buy the toughest asset ever created. Bitcoin, the real hedge against the collapse of any economy. In any case, the Chinese government will probably try to remedy the situation. And somehow they will use this crisis to announce their digital yuan.
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According to NewsBTC