China’s growing property crisis: a look onto a few spill over scenarios

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by mekonsodre14


  • 70% of wealth in China is held in property (elsewhere average is btw. 20 to 35%)
  • Evergrande’s international payment obligations are due on Thursday
  • 1/3 of current China GDP is created by construction and property related activity (builders, materials/commodities, industrials/machines, services, etc)
  • China property market (sales) has been lagging for some months already
  • a lot of Chinese investors have been harmed by the gov’s regulatory actions in respect to Chinese tech companies (declining tech stocks), hence sentiment sensibility is heightened

Outlines of 3x spill over scenarios

1.) Unorderly containment + large spill over

Evergrande default spills over to other property and real estate firms in China.. with unorderly containment, leading to a considerable decline in many related industries (incl. services) due to panic and liquidity-squeeze-related market actions. Property prices in China would collapse and lead to a moderately sized property sell-off -> the rather significant negative GDP impact would hit Chinese wallets directly, leading to severe repercussions for China-focused firms (global) and China’s future growth in general

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-> large impact on international markets (most sectors), global crisis potential, quicker decline of China’s GDP, FED would have to delay tapering

2.) Orderly containment – moderate spill over

Evergrande default spills over to other property firms in China.. with orderly containment, resulting in a moderate decline in a few related industries (construction, concrete/steel, machines, real-estate) -> the GDP decline would impact China’s domestic spending/consumption power moderately and lead to a medium-long term cooling of the China property market

-> moderate impact on international markets (few sectors only), less long-term effects, slow-paced decline of China’s core GDP

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3.) Orderly containment – small spill over

Evergrande default spills over to a few selected property firms in China (with extra large debts). China’s gov steps in quickly and aggressively to ensure an orderly containment with a direct relief to calm down markets, resulting in a small decline in a few related industries (construction, concrete/steel, machines, real-estate) -> the slight GDP decline would result in rather short-term consequences for China’s domestic spending/consumption power. The CCP would at least manage to keep China’s property prices stable thus not affecting savings/wealth of the main street too significantly; the spill over effects would be barely visible.

-> only short-term / slight impact on international markets (selected sectors only)


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