China Prioritizing Homeowners Over Bondholders

Similar to how foreign investors didn't realize China was serious about no major stimulus back around 2014, they do not yet understand that the CCP doesn't care if wealthy and foreign investors go bankrupt.

ZH: China Steps In To Ensure Evergrande Funds Used To Complete Housing Project, Not Pay Creditors

With Evergrande's foreign bondholders saying they have yet to receive a closely watched $83.5 million interest payment that was due at midnight in New York on Thursday, or noon on Friday in Hong Kong, in effect starting a 30 day grace period before a hard default is triggered, Bloomberg reports that China’s housing regulator has "stepped up oversight of China Evergrande Group’s bank accounts to ensure funds are used to complete housing projects and not diverted to pay creditors."

In other words, China is now not only deciding how the insolvent developer distributes its cash flow and, but is also forcing it to prioritize operational outlays over payments to creditors, a step which companies traditionally take after they have filed for bankruptcy. The move is a confirmation that homeowners come first on Beijing’s priority list for managing the Evergrande crisis - in hopes of preventing a major hit to China's property sector - even as bondholders, banks and other creditors seek repayments on more than $300 billion in liabilities from the world’s most indebted developer.

The stock market is not the economy. Highly financialized economies such as the USA are made weaker by their reliance on equity production and trading as an industry. The CCP understands that it doesn't really matter what price stocks trade at as long as the factories are open, people are employed and can afford a rising standard of living. At extremes, stock prices will affect operations. Bond markets are more important, but also expendable. If bond holders are wiped out, the factory is still there. If it can keep operations going, well sucks to be an economically-superfluous bondholder. For the CCP, the threat of instabiliy and loss of economic control is a reason to bring the market to heel rather than to let it take over more of the economy.

It's crystal clear to me who will be taking 100 percent losses should the credit bubble pop. That's not to say China is a unique risk. Many Western investors will probably lose more on their U.S. investments in a global bust. Yet there's still this mystique around the CCP, as if "to get rich is glorious" is still the motto. Anyone who thinks China will control the fallout to the benefit of foreigners, or even its own wealthy citizens, should look again at everything that has happened this past year. My read is that China is preparing for a bust by consolidating political power. Laying waste to an entire class of people who threatened CCP authority, even if indirectly, is one benefit of a major financial crisis.

The difference between China and the USA is that the CCP is very clearly the political authority in China, responsible for whatever happens. It cares for the people because if it does not, the people will come for them. In the USA, democracy has been delegitimized. No one is actually in charge. No one takes responsibility for anything. USG blames the Federal Reserve, the Federal Reserve blames the government or natural forces. No one is fired for any failure because there is no check on authority. Corporations and government run roughshod over the citizens. People are forced to stay at home under pandemic lockdown orders while illegal migrants enter the country and roam free. The unelected New York Governor (she took over after Cuomo resigned) threated to replace New York hospital workers with foreigners if they don't take the mRNA terapy shots. America is a decapitated democracy run by rogue bureaucrats, with Dr. Fauci an example of how quickly a lower level incompetent with tyrannical tendencies can take over the entire U.S.A. by pushing the bureaucracy in his direction. If the American people do not revolt or a strong leader doesn't step up and restore order, investors in the USA will eventually lose far more than investors in China because whereas China will arrest a crisis with bold action, the U.S. could spiral into chaos will basic social order breaking down.