Okay, I'll bite. I think the Evergrande crisis is a telling example of the limits and risks of China's subordinate capitalist sector, but because of China's two-tiered, state-led economy, the systemic risks are low and not comparable to capitalist economies. Some thoughts:
https://twitter.com/amara_transw/status/1440333324719775760
First, some background. Michael Roberts did an excellent post on Evergrande and what he thinks will happen, which I largely agree with. See: thenextrecession.wordpress.com/2021/09/19/not…
Remember that what made the housing crisis so severe in the US was the extreme obfuscation caused by the securitization of junk mortgages, inaccurate credit ratings and the subsequent compounding of risk through derivatives. This made the liquidity crisis severe.
China, on the other hand, doesn't share the same risks. First, the vast majority of Chinese are housing *owners* not borrowers - residential mortgages are rare. Second, Evergrande is a relatively known quantity and people have been sounding alarms over it for a long time.
As I understand it, Evergrande's largest creditors are Chinese state-owned banks. This (likely) means that the state has significant insight into Evergrande and also gives them a tremendous amount of leverage (literally) to dictate the outcome of any restructuring.
This also means that the systemic financial risk is likely a much more known quantity compared to what happened in 2008 in the US, where no one knew who owned what and for how much. The lack of information dramatically exaggerated the extent of the crisis.
My point about the lack of residential mortgages in China is to underline that the financial system in China is very, very different from any other country in the West. It is state-controlled and tightly regulated, and the risks of a real liquidity crunch are relatively low IMO.
That being said, I'm guessing there will probably be a limited a crisis in the stock market which will primarily impact foreign investors and other speculators without much spillover.
The interesting aspect of this to me is what this means for the future of real estate in China and the state's relationship to it. Construction and finance are already controlled by the state - I wonder if this would encourage the state to take further control over real estate.
China has been on a spree of new regulations and restrictions lately on the capitalist sector and the timing of this with the new "common prosperity" initiative is interesting. The recent clampdown on Ant Group might foreshadow this, but I don't know.
It also lines up with recent regulator statements about controlling the disorderly expansion of capital. So yeah it's going to be very interesting to see what the outcome of this is, but anyone expecting it to resemble 2008 in the US is being misled.
It's also another reminder to treat Western reporting on China and the Chinese economy with a huge grain of salt. Capitalist media has been screeching about the coming housing collapse (that never materialized) in China for yeeeeears.
My thinking is that the capitalist media *wants* to see a housing collapse in China to A) prove that the Chinese system is "just as bad" as elsewhere or B) provide an opening for political disruption from the social instability created
I also think this is just another example of Western observers looking at China through the lens of *their* home country, not realizing that China is not controlled by an oligarchic FIRE sector like the US.
(by the way, I'm not a financial advisor, I'm an idiot, don't take any of this as financial advise lmao)
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