1/4
"While the state-owned financial firm’s longer-term bonds are sinking toward record lows amid expectations investors will be forced to take on losses as part of an overhaul, notes maturing over the next few months trade at much higher levels.

bloomberg.com/news/articles/…
2/4
That suggests bondholders remain confident the company will continue to repay its debts on time and any restructuring is a way off."

That's an interesting development, but except for the perpetuals, which are seen as a kind of equity, I wouldn't expect the regulators to...
3/4
decide to pay off short-term bonds at the expense of longer-term bonds. If they have decided that Huarong must restructure, it wouldn't seem to make much sense for to allow it to use its limited resources in that way. That just means rewarding one group of bondholders for...
4/4
no particular reason and forcing even greater losses on another group. Wouldn't that just teach investors in Chinese bonds to shun longer maturities in favor of shorter maturities?

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More from @michaelxpettis

23 May
1/4
The RMB was up 4% against the CFETS index in the past year. Regulators are considering allowing the RMB to strengthen further in order to reduce the inflationary pressure of imported commodities, but if they do, as some have already...

bloomberg.com/news/articles/…
2/4
warned, we’re likely to see further financial inflows, which will in turn worsen domestic asset bubbles and increase the potential for financial instability. What’s more, a higher RMB could weaken exports, and while this might be partially balanced by stronger...
3/4
consumption, the net impact must be either slower GDP growth or more property/infrastructure investment, and hence a worsening debt burden.

My best guess is that we’ll see a stronger RMB and more debt. Earlier this year I argued that China could manage 6-7% GDP growth...
Read 4 tweets
21 May
1/7
Chinese regulators are putting ever more pressure on property developers to constrain the debt needed to fund their activity. Why? it must be because they don't think this activity contributes to real growth in the...

bloomberg.com/news/articles/…
2/7
economy, even though it is a major contributor to reported GDP. As the article points out, "real estate contributes to about 29% of China’s economic output if its wider influences are factored in, according to a joint research by Harvard University and Tsinghua University".
3/7
This is the part that I think most analysts still fail to grasp. After all these years they treat this activity as if it continued to be as economically valuable in China as it had been two decades ago, and as it would be in other countries, and yet Beijing clearly isn't...
Read 16 tweets
19 May
1/7
A PBoC director acknowledged last month what people like me have been pointing out for years (in my case well over a decade): that an internationalized RMB is incompatible with control over China’s domestic monetary and financial systems, and hence...

bloomberg.com/news/articles/…
2/7
with financial stability, which is why for all the overexcited talk about its inexorable rise as one of the world’s dominant currencies, it simply wasn’t going to happen: “We need to admit that under the condition of yuan internationalization, we won’t be able to control...
3/7
the exchange rate, and China’s central bank has to let go of exchange-rate goals in the end,” he said, which is at least a little surprising – and perhaps a little revealing – given that the PBoC officially hasn’t intervened since 2017.
Read 7 tweets
18 May
1/9
Very good article by Alexandra Stevenson (@jotted), @KeithBradsher and @caocli on the conundrum Beijing faces with Huarong. Huarong is a balance-sheet mess, and this has been widely known for many years, so it was never really a surprise that it...

nytimes.com/2021/05/18/bus…
2/9
would eventually run into payment difficulties. In the past, however, because MoF owns over 60% of Huarong, Chinese banks and bond investors always refinanced the company's debt on the assumption that the government would support its credit.
3/9
In recent years however the regulators – extremely worried by China's weak lending discipline, and eager to bring the country's debt burden under control – have been trying to convince creditors that they could no longer count...
Read 10 tweets
17 May
1/4
This story doesn't change much, does it? Real estate prices in China's 70 largest cities rose month on month by 0.48% in April, after rising 0.41% in March. This is an annualized 5.9% for April and 5.5% for the past two months.

bloomberg.com/news/articles/…
2/4
With deposits at 0.35%, and government bonds yielding between 2.6-3.2% (1-year to 10-year), even low rental yields of roughly 2% make buying an apartment seem a good investment. Beijing has been growling about surging real estate prices for years, and more than...
3/4
ever recently, even threatening a real estate tax, but until regulators implement sharper-toothed measures — which of course if credible will almost certainly cause prices to fall — there is little they can do to prevent ever more speculation in Chinese real estate.
Read 4 tweets
14 May
1/10
This is the argument that Yu Yongding and a few others have been making, but I don't think that this is what most economic policymakers and policy advisors believe. In a recent debate Yu described his view as a minority view.
2/10
As for “Consumption is never a source of growth", I think the claim can be made that it isn't a direct source of growth, and certainly not in the way Beijing has always thought about growth, but it is consumption (foreign or domestic) that justifies business...
3/10
investment, even if one can pretend that more consumption isn't needed to justify property and infrastructure investment, and in China it is the latter two that is largely unproductive and causes the surge in debt.
Read 12 tweets

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