Thread by @BaldingsWorld

Here is an Evergrande feed about some sub-topics that I think are misunderstood or being poorly analyzed. First, I have seen many people and journalists talk about how China has pushed to increase risk acceptance by emphasizing market mechanisms. This is just false. 1/n

Journos typically take one of a couple of quotes like Xi saying "houses are for living, not speculating" but forget in addition to the towering mountain of data and evidence to the contrary, all the little signals Chinese investors and buyers cue on to make decisions. 2/n

For instance, probably 1/4 apartments in China sit empty and the pace of building (supply) far exceeds any remotely conceivable level of demand. Highlighting the overly cited Xi quote is akin to saying the Taliban is on the UN Council for Gender so women are doing fine 3/n

in Afghanistan. It simply flies in the face of all evidence. When you delve into the details, real estate and other firms demonstrate their closeness with the government that mean more buyers and investors than simply one quote. Top level government dictats in China are weak 4/n

Signals rather than how policy actually behaves. For instance, developers like Evergrande will typically sell fund raising products through major SOE banks knowing full well that retail investors seeing this will treat it as government guaranteed regardless of what the fine 5/n

Print says in the contract. This is akin to saying Fannie Mae isn't government guaranteed. It isn't government guaranteed until it is government guaranteed but everyone treats as government guaranteed despite the government and Fannie saying it isn't. Evergrande as well 6/n

as other firms take every opportunity to appear with every local government official they possibly can to reinforce the public belief in a propaganda media environment they are effectively state backed. Think almost like celebrity endorsement. So regardless of a couple of 7/n

Cherry picked quotes, idea that China has been stressing market risk and market pricing is just absolute nonsense. You cannot be the totalitarian social and market controller and then say we have nothing to do that. It makes no logical sense on any level and Chinese know it 8/n

The other primary point is that this is absolutely not a China Lehman moment. Just stop. Here is the reason: China will bail. They always play chicken with the markets to try and say this time we mean it but always bail when the hard decisions have to be made. 9/n

Underlying reason for that is simple: if Evergrande doesn't get bailed and people loose faith in Chinese real estate, seriously what is left of the Chinese economy? By some estimates 30% of the economy is real estate. It's driving everything from commodities to employment 10/n

Now bail can mean a variety of things here, convert the debt to no interest and extend duration through to have other firms buy the unfinished projects at cost and complete them. Variety of options but China will bail. They will not let fall to the market & massive haircuts 11/n

Go back to Huarong. They are creating a bad bank to buy bad assets from the original bad bank. Inelegant inefficient solution but they will not let it implode upon itself. They simply will not. Done.