The following item is appearing in the n. 38 of the EIR Strategic Alert Service.
The largest Chinese real estate company, Evergrande, is a few days away from a default, but Beijing is not worried. Instead, Western financial circles are fearing a chain-reaction and are scrambling to obtain a bailout of sorts. However, the Chinese authorities have already announced that no bailout is coming. Global Times Editor-in-Chief Hu Xijin said on his WeChat social media account on Sept. 16 that Evergrande should turn to the market for salvation, not the government. The irony is that whereas neo-liberal systems in the West have abused state interventionism to bail out banks and hedge funds in the last decade, an ostensibly communist regime lets “market mechanisms” decide on Evergrande’s destiny.
The reason is simple: Financial bubbles can grow and burst in China, like this one in the real estate sector, but the commercial banking system is insulated from speculation, thanks to a bank separation regime. Evergrande is basically an offshore operation; its holding is based in the Cayman islands and it has 16% of the entire Chinese bond exposure, at junk-interest rates that go up to 14%. Its default hits mostly foreign creditors, including the Gotha of Western investment funds, which turned to Chinese junk bonds as interest rates on the U.S. junk market have gone negative, reflecting the Fed QE policy. The four largest creditors are the Ashmore Group (U.K.) with $430 million exposure; BlackRock with almost $400 million; UBS with $280 million and HSBC with little more than $200 million.
