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China Gears Up For A Possible Bail-In

In the year 2008, where was our economy?  We were on the brink of electing a new President into office, the war continued and became a sense of normalcy in every household, oh, and all the money that we had loaned out through our big banks crashed our economy.  It sure was a cluster of events that made 2008 a year that will never be forgotten.  In our moment of economic crisis, we had not many options to look towards but our allies to help bail us out.  China was able to help us tremendously and hemorrhage our bleeding economy.  They were able to get us back to a somewhat neutral area that helped give back jobs to those that lost and helped restructure some of our financial processes.  Evergrande, who owns more than 1,300 buildings in China, owe approximately $300 billion in debt.  This has added on major stress to the economy of China that may have inflation rates rising in the near future.

What does this mean for the Chinese economy?  China is known for their self-sustained economy.  The economic market is held at a superior level for all of the exporting that China does for countries all over the world and has made the economy there one of the best in the world.  With all the debt that has accrued, China may need support from surrounding governments to help bail them out.  “It seems that we may have already started the financial distress process.  As the risk of insolvency increases, the behavior of sales agents, homebuyers, suppliers, and other stakeholders changes in ways that further undermine revenues and expenses.  Once this process begins, conditions can quickly spiral downwards unless someone like the government steps in to guarantee payments”.  Professor Michael Pettis, from the Peking University, stated this in a recent interview.

The bubble may seem ready to burst for China.  Over the past years, the housing market has become more and more inflated as it has been fueled by the excess in debt that has accrued over time.  The situation for Evergrande has already seen a rare scene of protestors, and has many hurdles to overcome to prevent an economic collapse.  Some analysts have suggested that the sale of the company is highly recommended, to transform as many assets as possible into a healthy market correction.  One thing may be certain, a bail-in may happen for the Chinese government.  How? Or when? Is the question that can not be answered just yet.

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