There is a potential global systemic risk brewing in China that may impact you and your finances if you are an investor. Chances are, you have not heard of it, but I am talking about EVERGRANDE of China. For those new to them, they are one of the largest RealEstate companies in the world with over $300 BILLIONS in loans and assets.
In fact , they are the backbone of many Chinese banks and companies. Their wings are spread globally, though.
Most of the money China loans to African countries are financed by big Chinese Banks, with government backing. Most of Chinese Real Estate is financed by them. There is wide spread fears they are on the verge of government induced collapse and, they may default on their obligations that are coming due.
Background to their problems.
A few months ago, Chinese government initiated a crackdown on various sectors of their economy. They started with Bitcoin mining operations, then moved to Gaming operations, then moved to for profit Education sector, then to E-commerce, and now, the target is RealEstate.
Arguing that homes and RealEstate prices are now too high for average Chinese to afford them, they passed several restrictive initiatives that have now clipped the wings of this once high flying Financial behemoths, Evergrande
The question now is, will the Chinese authorities allow such a huge operation to collapse as it is looking like?
Many people myself included, are of the opinion, they will not.
Allowing such a huge financial conglomerate to collapse would definitely shake confidence in Chinese Financial system, long term; but short term, it could create a global systemic failure in other nations that are China dependent.
Many African nations rely on China for various Financial and commercial businesses. A bigger fear is that, such a collapse could spiral out of hand and potentially, lead to the collapse of many Banks and other Chinese industries.
If these Financial Institutions find themselves on the verge of collapse, they may potentially call in their loans to African countries. Their abilities to make new loans are also going to be curtailed.
I am of the opinion, Chinese government will not allow such a far spread out conglomerate to fail. What I see happening is, the government will allow them to peek at the precipice, look down the valley of collapsing, then, somehow, an “angel” will match in and rescue them.
That angel will be the government under a different name. The Angel will extract pounds of flesh and set the tones of their future existence. In a nutshell, I just don’t see China allowing a potentially global systemic risk engulfing their economy. Whatever you do, keep an eye on China