China Evergrande Group is an enormous real estate construction firm that has built millions of homes and other structures in China, and which has expanded into other areas, such electric vehicles, a theme park, a soccer club, a food company, and other areas. However, Evergrande is now close to default because of its massive debt, and its inability to meet its obligations.
So Evergrande as a construction firm has completed nearly 900 commercial, residential, and infrastructure projects. But it has 1.5 million unfinished properties, for which down payments have been collected, but many of which have stopped construction, for lack of funding. For years, Evergrande has apparently used down payments for new homes and projects to fund completion of previously committed projects, leaving no money for the new projects.
Millions of ordinary homebuyers who made down payments on new home construction are now facing losing their down payments, and getting no homes. According to press reports, Evergrande now has about 900 unfinished projects, and there are about 1.2 million people waiting to move in.
Millions of ordinary homebuyers who made down payments on new home construction are now facing losing their down payments, and getting no homes. According to press reports, Evergrande now has about 900 unfinished projects, and there are about 1.2 million people waiting to move in.
n order to fund its Ponzi scheme, Evergrande for years has been offering investment opportunities in "wealth management products" (WMPs), which are offered by many Chinese banks and financial institutions, and which are are unique components of China's shadow banking system. A retail investor can invest in a WMP, which supposedly guarantees a high rate of return, but which is not directly backed by any solid asset, such as real estate. Evergrande pays the WMP through profits from its real estate business and by issuing its own bonds. But if the real estate business is not making profits, and if its bonds are losing value in the financial markets, then Evergrande will default on the WMPs.
Every Ponzi scheme depends on an accelerating stream of cash to fund further sales to meet previous debt obligations. As soon as there's a slowdown in the incoming stream of cash for any reason, like a recession or new regulations, then the Ponzi scheme crashes. That seems to be where Evergrande is now. This means that homebuyers, lenders, bondholders and retail investors are all subject to some or all of their investments. According to some reports, bondholders will lose 75% of their investments.
Every Ponzi scheme depends on an accelerating stream of cash to fund further sales to meet previous debt obligations. As soon as there's a slowdown in the incoming stream of cash for any reason, like a recession or new regulations, then the Ponzi scheme crashes. That seems to be where Evergrande is now. This means that homebuyers, lenders, bondholders and retail investors are all subject to some or all of their investments. According to some reports, bondholders will lose 75% of their investments.
No comments:
Post a Comment