"The Chinese real estate market is looking grim as major companies have started to fall. Most dollar bonds sold by Chinese companies are trading below 10 cents on the dollar. It’s only looking worse as some companies haven’t completed a deal in more than 18 months." -- Elias Yuasa, SEVENTH GRADE
The Chinese real estate market is looking grim as major companies have started to fall. Most dollar bonds sold by Chinese companies are trading below 10 cents on the dollar, and some are trading at a jaw dropping less than 5 cents on the dollar. It’s only looking worse as some companies haven’t completed a deal in more than 18 months, according to the Wall Street Journal.
Bonds are a type of trade used by companies and governments in a way similar to stocks. “When you buy a bond, you are lending to the issuer, which may be a government, municipality, or corporation. In return, the issuer promises to pay you a specified rate of interest during the life of the bond and to repay the principal, also known as face value or par value of the bond, when it "matures," or comes due after a set period of time,” according to Investor.gov. For example a company gives an investor a bond with 50 cents on the dollar. The investor would pay a certain amount now. Then later the company would pay the investor back with the interest of the bond, 50 cents on the dollar in this example. The issue with this is sometimes the investor can't be paid back.
When a company fails to pay back a bond that means the bond has defaulted. When a bond defaults the investor loses all of the money they originally paid and all the money they could have reserved from interest. This happens a lot of the time due to the fact that most companies will issue bonds when they are at risk of bankruptcy. This means that if they can’t recover you lose all the money you invested. If bonds are defaulting this usually means that the company issuing bonds is in trouble. Once bonds default, it means that the company has low survival rates and will most likely go bankrupt.
Bonds are a type of trade used by companies and governments in a way similar to stocks. “When you buy a bond, you are lending to the issuer, which may be a government, municipality, or corporation. In return, the issuer promises to pay you a specified rate of interest during the life of the bond and to repay the principal, also known as face value or par value of the bond, when it "matures," or comes due after a set period of time,” according to Investor.gov. For example a company gives an investor a bond with 50 cents on the dollar. The investor would pay a certain amount now. Then later the company would pay the investor back with the interest of the bond, 50 cents on the dollar in this example. The issue with this is sometimes the investor can't be paid back.
When a company fails to pay back a bond that means the bond has defaulted. When a bond defaults the investor loses all of the money they originally paid and all the money they could have reserved from interest. This happens a lot of the time due to the fact that most companies will issue bonds when they are at risk of bankruptcy. This means that if they can’t recover you lose all the money you invested. If bonds are defaulting this usually means that the company issuing bonds is in trouble. Once bonds default, it means that the company has low survival rates and will most likely go bankrupt.
Evergrande is one of China's biggest real estate companies and even they’re struggling with them having to default near the end of 2021 according to the New York Times. But since then things have gotten worse as Evergrande hasn’t recovered. Recently the company abandoned a $35 billion debt reconstruction plan, but Evergrande isn’t the only real estate company that’s in hot water.
Just a few weeks ago Country Garden, another huge real estate company in China declared they have run out of money. Country Garden was once one of the biggest home builders. Now they’re suffering as they say they’re at risk of defaulting after a grace period to pay $15 million in interest on a US dollar bond expired, according to CNN.
Despite what you may think, China isn’t the only country that has to worry. The entire planet has to worry, as China has been the cause of over 40% of global economic growth according to the New York Times. If they start having problems economic growth would go down. In addition to that China is one of America’s largest trading partners, having spent billions of dollars on U.S. crops and machinery. This would create a nightmare for the U.S. if the Chinese housing market continues to go down hill. China could be the first of many real estate markets to come crashing down.
Just a few weeks ago Country Garden, another huge real estate company in China declared they have run out of money. Country Garden was once one of the biggest home builders. Now they’re suffering as they say they’re at risk of defaulting after a grace period to pay $15 million in interest on a US dollar bond expired, according to CNN.
Despite what you may think, China isn’t the only country that has to worry. The entire planet has to worry, as China has been the cause of over 40% of global economic growth according to the New York Times. If they start having problems economic growth would go down. In addition to that China is one of America’s largest trading partners, having spent billions of dollars on U.S. crops and machinery. This would create a nightmare for the U.S. if the Chinese housing market continues to go down hill. China could be the first of many real estate markets to come crashing down.
