Evergrande's Fiasco Could Hit China's Economy

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NPR 22 September, 2021 - 04:03pm 33 views

How big is Evergrande in China?

What is Evergrande? Evergrande Real Estate – or Heng Da Group in Chinese – owns more than 1,300 building projects in more than 280 cities across China. Founded by the former Chinese steel executive Xu Jiayin in southern China in 1996, it is now China's second-biggest property developer by sales. The GuardianEvergrande: will it collapse and what would happen if it did?

Van Patten told Insider that she's flattered by the comparison.

"She's an amazing actress and beautiful," she said. "So, I will take it."

Visit Insider's homepage for more stories.

"Nine Perfect Strangers" was the first time many people saw Grace Van Patten in an on-screen role. But for some, there was something distinctly familiar about the newcomer.

Following the David E. Kelley series' release on Hulu, articles and tweets comparing the 24-year-old New York City-native to actress Shailene Woodley flooded the internet. They called her the "Divergent" star's "doppelgänger," and some swore that the two actresses had to, at the very least, be distantly related. They're not.

Van Patten, who plays Zoe Marconi on the Hulu series, has seen the comments online, and she finds them to be extremely flattering, she told Insider. Long before the show even aired in August, the actress was receiving a steady stream of remarks about her resemblance to Woodley.

"I've gotten it a bunch, and I love that," Van Patten said, continuing, "She's an amazing actress and beautiful, so I will take it."

While Woodley and Van Patten have not worked together in the past, they have both been cast on projects with Nicole Kidman.

Van Patten costarred with the Academy Award-winner on "Nine Perfect Strangers," and Woodley appeared alongside her on HBO's Emmy-winning series "Big Little Lies." Kidman served as an executive producer for both shows.

Van Patten, whose father Tim Van Patten works as a TV director, told Insider that she hopes to one day become involved in the creative process like Kidman, who founded a production company called Blossom Films in 2010.

"Nicole is so inspiring in the way that she has just carved a path for young women and aspiring filmmakers and actors and writers and having this production company that's creating opportunities for younger women to do the same thing," she said, adding, "I would love to hop on that train for sure."

Read the original article on Insider

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Read full article at NPR

Is the Evergrande Crisis a Contagion Risk?

Bloomberg Markets and Finance 22 September, 2021 - 06:50pm

If the Federal Reserve had ever been seriously contemplating a taper announcement after Wednesday’s meeting, the equity turmoil on Monday probably ended that consideration. 

Instead, the US central bank now faces the task of reassuring markets buffeted by a property default crisis in China, two-weeks of escalating stock losses and an American economy beset with falling job creation and the worst inflation in a decade. 

The Fed will issue its policy statement and this year's third set of economic and interest rate forecasts at 2:00 p.m. ET on Wednesday. Federal Reserve Chair Jerome Powell will speak and answer questions for an hour beginning 30 minutes later.  

It is widely expected that the bank will offer a clarification of Mr. Powell’s August promise that the Fed would begin to reduce its $120 billion in Treasuries and mortgage-back securities purchases before the end of the year. 

Three weeks ago, speculation was rife that the Federal Open Market Committee (FOMC), the bank’s policy making body, would announce the schedule and amount of its bond taper on Wednesday. 

Since then the economic picture has altered markedly.

In the, US job production fell by more than 800,000 from July to August. Headline inflation remained above 5%, and the Producer Price Index (PPI) reached its highest level in over 10 years, assuring a long run for consumer price increases. 

China’s debt-ridden Guangdong property developer Evergrande Group edged closer to default and ignited a 3% drop in Hong Kong’s Hang Seng index on Monday that spread around the world. The Chinese government is not expected to prevent its bankruptcy if the firm is unable to make a bond interest payment on Thursday. 

American equities have been on a prolonged losing streak. The Dow is down 4.8% from its August 16 high of 35,631.19, including a 1.8%, 614 point plunge on Monday. The S&P 500 has dropped 4.2% from its September 2 top at 4,545.85, losing 1.7%, and 75 points on Monday.  

Treasury yields are signalling concerns, if not yet outright problems, ahead for the US economy. The 10-year return has shed 5 basis points in the last two sessions, to 1.325% (close 9/21), though it is still above its early August lows. 

In contrast, risk-aversion and the safety trade have pushed the dollar higher in September against all the majors except the yen, which has its own safe-haven status in Asia. 

The most specific indications of the Fed’s view may come from its quarterly economic and rate forecasts and the voting for the fed funds rate, the so-called dot plot that charts the members' predictions. 

In the June estimates only two members of 18 contributing, had expected a rate hike in 2022. For 2023, 11 predicted the fed funds rate would be higher by two quarter-point increases.   

If the number of members voting for higher rates increases, it will signal to markets that the fed funds cycle might start sooner than currently anticipated. 

It would also affect the way the credit market views the advent and speed of the bond taper, moving the date sooner and the amounts higher. 

The June prediction for GDP this year climbed to 7.0% from 6.5%. That is unlikely to increase. Although the US grew at an annualized 6.5% rate in the first half, the expansion has tailed off in the third quarter. Dragged down by covid restrictions and labor and materials shortages, the Atlanta Fed GDPNow model posits just 3.7% growth in the third quarter.    

The final category is PCE inflation. In June the headline rate rate for this year moved up to 3.4% from 2.4% and the core rate projection climbed to 3.0% from 2.2%. With the overall rate at 4.2% in July and the core rate at 3.6%, these estimates could easily increase. 

It will be up to Federal Reserve Chair Jerome Powell to explain the bank’s policy and views to the press and markets. Whatever the Fed decision on the taper it will be covered in his short presentation before the press conference. 

The bank’s most likely position, considering the recent economic and market developments, is for Mr.Powell to confirm the intention to begin the taper by then end of the year but again defer the date and amount.  

The Fed has been preparing the markets for the end of the bond program since first mentioning it in the minutes of the April FOMC meeting released in mid-May. 

Institutionally, the Fed knows that ultra low interest rates are not a feature of a well-functioning economy. Under Janet Yellen, the Fed fought a long campaign to bring interest rates higher, despite none of the traditional signals for tighter monetary policy from the economy. 

The Fed governors are in a similar position now.  

The economy is improving but the potential pitfalls from the unresolved labor and material shortages, inflation and the pandemic make any economic predictions fraught with uncertainty.  

The US recovery can probably withstand higher interest rates but the risks are considerable. 

As soon as the bank indicates that the taper will commence, the Treasury market will take interest rates higher and the dollar will follow. No matter how much the Fed insists that ending the bond program does not mean a rate hike is coming, that is a semantic game that fools no one. The credit markets do not depend on the fed funds rate for guidance. 

As Napoleon observed, the logical outcome of a retreat is surrender, so higher interest rates are the logical outcome of the end of the Fed’s bond purchase program.    

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EUR/USD has reversed course, plunging under 1.17 after the Fed signaled tapering of bond buys as soon as November, and the conclusion of the process in mid-2022. The hawkish surprise means a rate hike could come sooner. 

GBP/USD is trading under 1.3650, falling as the Fed signaled tapering could begin shortly and end in mid-2022. The prospects of US rate hike are boosting the dollar across the board. 

GBP/USD is trading under 1.3650, falling as the Fed signaled tapering could begin shortly and end in mid-2022. The prospects of US rate hike are boosting the dollar across the board. 

Fed leaves interest rates unchanged says moderation in asset purchases "may soon be warranted". Gold volatile on the FOMC statement and rallies into daily resistance. Risk-on tone persists surrounding Evergrande contagion prospects abating. 

Ripple price came down 20% since the beginning of this week. With some upside today, bulls stand to face a bull trap that could get quite painful. A better entry point at $0.78 looks to be more promising for bulls.

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China's Evergrande meets crucial debt deadline but another looms

CNN 22 September, 2021 - 06:50pm

Updated 4:27 AM ET, Wed September 22, 2021

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Here's why the Evergrande crisis is not China's 'Lehman moment'

CNBC 22 September, 2021 - 03:19am

BEIJING — Property developer China Evergrande's debt woes are not likely to cause the same fallout as the collapse of U.S. investment bank Lehman Brothers in 2008, analysts said.

Evergrande's Hong Kong-listed shares have tumbled nearly 90% since July 2020, as the Chinese government cracked down on speculation in the real estate market.

The stock has lost more than 20% in the last five trading days, and investors are watching to see if the highly indebted real estate giant will be able to make millions of dollars in interest payments on U.S. dollar-denominated bonds in the coming days. The jitters have contributed to global stock market declines this week.

However, when it comes to the scale of potential impact on international financial markets, analysts point to a major difference between the Evergrande crisis and the Lehman collapse: Evergrande holds land, while Lehman held financial assets.

Evergrande has cash flow problems, but talk of systemic risks is "a bit overdone, frankly," Rob Carnell, regional head of research for Asia-Pacific at ING, said Wednesday on CNBC's "Squawk Box Asia."

"Let's face it, this is not Lehman's, this is not LTCM," Carnell said, referring to American hedge fund Long-Term Capital Management, which failed in the 1990s. and spurred a panic. "It's not a hedge fund with massive leveraged positions or a bank whose financial asset prices are hurtling towards zero. It's a property development firm with quite a lot of debt, you know, 300 billion plus thereabouts in dollar terms."

He expects that if Evergrande can get some cash flow into its physical assets, the company can finish its development projects, sell them and start paying down debt.

On Wednesday, the company's real estate group announced it would pay the interest on time on a mainland-traded bond denominated in yuan.

"Evergrande is facing a liquidity crunch although it owns a large land bank," Larry Hu, chief China economist at Macquarie, said in a report Tuesday. He noted that the developer's assets consist primarily of land and housing projects that are worth just over 1.4 trillion yuan ($220 billion).

The collapse of Lehman Brothers led to a crash in financial derivatives — credit-default swaps and collateralized-debt obligations — "causing the market to doubt the health of other banks," Hu said.

"But it's quite unlikely that the Evergrande saga would cause the land price to crash," he said. "After all, the value of land is simply more transparent and stable than financial instruments. It's especially so in China, where local government monopolizes the land supply."

"As the result, [the] local government has a strong incentive to stabilize land price. In the worst-case scenario, local government could even buy back land, as they did in 2014-15," he added.

Another critical difference in Evergrande's case is the greater level of government control and involvement in China's real estate industry.

"Chinese banks and many other entities are government arms first, intermediators a distant second," analysts at research firm China Beige Book said in a report Monday. "Even non-state financials can be controlled to an extent rarely seen outside China. Commercial bankruptcy is a state choice."

"Beijing says lend, so you lend; when or even whether you get your money back is secondary," the report said. "No Lehman-style contagion story makes sense here and therefore no Lehman Moment will there be."

The legendary U.S. investment bank collapsed 13 years ago this month in an iconic moment of the global financial crisis. The bank underwrote tens of billions of dollars' worth of securities backed by risky mortgages during a U.S. housing bubble. The U.S. government ultimately allowed Lehman to fail, while bailing out other financial institutions.

In China's case, Beijing has tried to allow the market to play a greater role in the economy by letting more state-owned enterprises's loans default.

Authorities will be patient in Evergrande's case as they have two goals of preventing excessive risk-taking and maintaining stability in the property market, said Macquarie's Hu.

"Policymakers would choose to wait first, then step in later to ensure an orderly debt restructuring," he said. "A wholesale bailout is not very likely and shareholders/lenders might take a big loss. But the government would make sure that the pre-sold apartments get done and delivered to homebuyers."

Hu also pointed to the Chinese government's recent track record in restructuring giants such as Anbang Insurance, Baoshang Bank, HNA Group and China Huarong Asset Management. "China's banking system has an annual profit of 1.9 [trillion yuan] and a provision of 5.4 [trillion yuan], which could easily absorb the loss from Evergrande," he said.

In Evergrande's case, the property developer has more direct ties to foreign investors than the bulk of China's economy.

The company has about $19 billion in total offshore bonds outstanding, equivalent to about 9% of U.S. dollar-denominated Chinese bonds, according to investment bank UBS. Evergrande's total liabilities of about $313 billion is about 6.5% of the total liability of China's property sector, the report said.

The UBS analysts expect Evergrande to restructure its debt, and predict that bond prices will recover from their lows and limit contagion.

The analysts also laid out a range of possible spillover effects if Evergrande were to enter the less likely scenario of full liquidation, such as the failure of exposed banks and selling across emerging market credit.

International Monetary Fund Chief Economist Gita Gopinath told Reuters this week the organization believes "China has the tools and the policy space to prevent this turning into a systemic crisis."

The IMF can organize bailouts for countries or regions in financial stress.

Even though public government statements in recent months have called for preventing major financial risks, Chinese authorities' intervention is not a given.

Chinese officials have so far made few major public statements about Evergrande.

At a press conference last week, a National Bureau of Statistics spokesman said the department is monitoring the difficulties of some large real estate companies and the potential impact on the economy.

China's real estate market and related industries such as construction account for more than a quarter of national GDP, according to Moody's estimates.

Bets that property prices would only rise ultimately forced many Chinese households to take out mortgages to afford homes. In the last few years, the government has tried to cool the market with measures such as restrictions on the level of debt developers can take on.

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