### Summary
Chinese property giant Evergrande is seeking approval from a US court for a debt restructuring plan for foreign bondholders and denies reports that it has filed for bankruptcy.
### Facts
- 💰 Evergrande, which is struggling with $340 billion in debt, is asking a US court to approve a restructuring plan for its foreign bondholders.
- ❌ The company denies news reports suggesting that it has filed for bankruptcy and clarifies that its request under Chapter 15 of the US bankruptcy code is a normal step in the overseas restructuring procedure.
- 📝 Evergrande negotiated a restructuring agreement with investors in its US dollar-denominated bonds under the legal systems of Hong Kong and the British Virgin Islands but needs approval from a bankruptcy court in New York City due to New York state law.
- 💸 The company faced a cash shortage after Chinese authorities tightened controls on corporate debt in 2020. Other property developers collapsed, leaving unfinished apartment buildings.
- 🏠 Evergrande claims to have more assets than debt but struggles to convert slow-selling real estate into cash for repayment of creditors.
- 🇨🇳 The Chinese government has sought to reassure investors that Evergrande's problems are contained and that lending markets will continue to function.
### Summary
Ray Dalio, a renowned investor, believes that China's struggling economy needs a significant debt restructuring, despite economists stating that Beijing won't intervene to support the failing property sector.
### Facts
- Ray Dalio currently has approximately $3 billion invested in Chinese businesses.
- China's struggling property sector, plagued by failing property giants and sinking house prices, is causing concerns about contagion in other industries.
- Beijing is unlikely to step in and prop up developers, even though the sector is described as the "single most important" industry on a global scale.
- China's debt has nearly doubled over the past five years, reaching about 66 trillion yuan ($9.3 trillion), which is more than half the country's annual economic output.
- Dalio suggests that China should undertake a massive debt restructuring, similar to what Zhu Rongji orchestrated in the late 1990s but on a larger scale.
- Dalio believes that China's restructuring would be easier than other countries' due to the majority of debt being held in the country's own currency.
- The two levers to facilitate the "beautiful deleveraging" process in China are deflationary defaults and restructurings, combined with the inflationary measure of printing money.
- Other countries, such as Japan, the United States, and Europe, will also need to deleverage eventually, but Dalio thinks China should take the first step.
- China is currently facing various alarming issues, including intervention in the currency markets, soaring youth joblessness, and a drop in land sales.
- China Evergrande, a major property developer, has filed for bankruptcy protection, and China's largest developer, Country Garden, is on the verge of default.
China is facing challenges in defusing risks from its local government debt without resorting to major bailouts, as many local government financing vehicles (LGFVs) are struggling to generate enough income to pay off their debts and are experiencing difficulty in accessing financing from banks and investors. If the debt restructuring efforts fail, it could have a significant impact on China's economic growth and pose risks to the country's financial system.
The massive retreat of funds from Chinese stocks and bonds is reducing China's influence in global portfolios and accelerating its decoupling from the rest of the world, as foreign holdings of equities and debt have significantly decreased amid China's economic slump and tensions with the West.
China's top leadership is pressuring provincial authorities and state-owned enterprises to repay debt owed to private companies in an effort to address the issue of triangular debt, which is hampering economic growth; the campaign aims to ensure that state-owned enterprises take the lead in repaying debts.
China's debt trap is beginning to backfire as countries struggle to repay their loans, forcing Beijing to prop up its debtors and issue emergency loans totaling over $230 billion; the country's own internal debts and lack of transparency in its Belt and Road investment initiative are contributing to the problem.
The US should demand that China support debt restructuring for struggling countries as a condition for changes to the IMF's shareholding formula, according to a former senior US Treasury development expert.
China is reshuffling its US debt assets rather than selling off its Treasury holdings, according to Brad Setser, a former Treasury official, who argues that China's reported holdings of US assets have remained stable since 2015 when adjustments are made for offshore custodians and third-party management.
China's Country Garden may announce a restructuring of its offshore debt soon, while concerns about a possible liquidation arise for China Evergrande Group as its debt plans face difficulties.
Sri Lanka has reached an agreement with the Export-Import Bank of China to cover a substantial amount of its outstanding debt, providing the necessary fiscal space for the country to implement its reform agenda and secure the release of the second tranche of an IMF loan.
Sri Lanka has reached an agreement with the Export-Import Bank of China to cover $4.2 billion of outstanding debt, which will help the country secure a second tranche from the International Monetary Fund (IMF) and move towards economic recovery.
Sri Lanka has reached a deal with China to restructure $4.2bn of debt, a key milestone in its efforts to recover from its worst financial crisis in decades and unlock the next tranche of a bailout.
China has instructed state-owned banks to restructure local government debt by offering longer-term loans at lower interest rates, as the country aims to reduce debt risks amid economic challenges caused by the property crisis and the COVID-19 pandemic.
China Evergrande Group is revising the terms of its proposed offshore debt restructuring deal to meet its situation and creditors' demand, as the embattled property developer faces a debt crisis and ongoing investigation.
China may continue to cut its US debt holdings amid worries over shrinking liquidity and safety risks, as well as efforts to diversify foreign exchange reserves. China has reduced its US debt holdings for five consecutive months, while Japan and the UK have increased theirs. Experts believe China's actions are driven by the poor performance of US Treasury bonds, the need for more sophisticated foreign exchange reserve management, and concerns over geopolitical risks. The abuse of the dollar's hegemony status by the US has also damaged global trust in the greenback and contributed to a trend of de-dollarization.
China's debt-saddled regions, including Tianjin, Guizhou, and Yunnan, are struggling to handle their massive debt burdens, leading to a reduction in investment and economic growth, as well as unfinished properties, and questions remain about the effectiveness of Beijing's debt-swap plan to address the issue.
