A Global Times editorial today let the world know that China has decided to deflate the real estate and other bubbles, and will not bail out those foreign interests who speculated in the Evergrande bubble. They quote Secretary of State Tony Blinken saying China must act “responsibly” with the Evergrande debt — clearly meaning the government must bail out the foreign bondholders.
The editorial acknowledges that there will be contagion from Evergrande missing debt payments, but insists that the company has more assets than liabilities (unlike Lehman Brothers, they add), and is now engaged in a massive “selling spree” in an effort to remain solvent.
Evergrande’s problems, they write, “were derived from its aggressive expansion on the back of high leverage and credit bubbles, a shared phenomenon among Chinese developers. In order to curb the reckless borrowing, Chinese authorities last year issued the `three red lines’ under which developers are required to ensure a liability-to-asset ratio of under 70%, a net gearing ratio [assets/liabilities] of less than 100% and a cash-to-short-term debt ratio of at least one or they, like Evergrande, will be restricted from borrowing more money.”
