China is a Minefield for International Creditors (Washington Examiner)

  • The Chinese government is struggling to survive revenue shortfall when three-year-long pandemic mismanagements take a toll on its economy. There is simply no spare fund for a private company whose collapse is only a matter of time. Even if the government had the resources, an Evergrande rescue would encourage thousands of Evergrande-in-the-making to follow suit — that is, borrow to expand and default to be rescued.
  • These borrow-first-default-later attitudes are bad, but the drive underneath is uglier: The Chinese government might see those offshore debts as a threat to its own foreign reserves. Although China has the largest foreign reserves (approximately $3 trillion), over half of that is from foreign direct investments, which need to be paid out when the investments leave China, as many are doing already.
  • With its foreign reserves coffer shrinking due to the loss of export steam, offshore debt repayments would be a drain on China’s foreign reserves. That is why the Chinese government actively encourages firms to roll over their overseas debts and may even be quietly encouraging defaults. READ MORE

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