When Will China Blink and Stop the Evergrande Meltdown?
No country can deleverage in a deflationary environment. If home prices plummet any more, a bailout may be inevitable.
The Evergrande Center building in Shanghai
Photographer: HECTOR RETAMAL/AFPBeijing has been sitting firmly on the sidelines as real estate developers falter on their debt repayments, tumbling like dominoes. The central government is reluctant to bail out the likes of China Evergrande Group, asking local officials to brace for their demise instead. But corporate bond traders are unleashing the worst sell-off in a decade. At what point will China blink? Or won’t it?
Don’t fret. China’s debt is at 224% of gross domestic product, one of the highest percentages in the world. If it is at all serious about cutting that down, it will have to relent and do something dramatic. Maybe even bail out Evergrande.