The property sector and its debts are possibly the biggest financial mess in China’s history.
The crackdowns by Chinese authorities on some of the biggest hype-and-hoopla industries have sent investors heading for the exits. There is a crackdown on debt to keep the financial system from imploding. There’s a crackdown on property speculation to tamp down on housing prices and on debt. There’s a crackdown on big tech – mostly internet, social media, and online gaming companies – for their monopolistic size and practices and a slew of other issues.
There’s a crackdown on education tech companies that sell off-campus educational courses that have driven the costs of education into the sky, discouraging Chinese couples from having more than one child. There’s a crackdown on all kinds of other activities that include reporting financial news and analysis in a way that the government doesn’t approve.
There are all kinds of reasons for these crackdowns, including the push by President Xi to create “common prosperity,” which has become a mantra to fight the ballooning wealth disparity linked to the surge in asset prices, including home prices that are now making homes unaffordable for the masses.
The crackdowns already resulted in some spectacular effects.
Wall Street is heavily involved in the stocks and bonds of these companies, both in the US and in China, many of which have dropped sharply, and some have collapsed.
Many Chinese companies have issued American Depositary Receipts, or ADRs, such as Alibaba. These ADRs aren’t actual stocks but were issued by an offshore mailbox entity in the Cayman Islands or wherever, that has a contract with the actual company in China.
Wall Street firms make a fortune setting up these ADRs, selling them to investors, managing them in their mutual funds and ETFs, etc. Wall Street makes money coming and going on these ADRs.
But those ADRs have unraveled. The Golden Dragon China ETF, which tracks these ADRs, has plunged by 46% since February, unwinding the entire pandemic hype-and-hoopla spike.
In the Chinese markets, China’s crackdown has caused the shares of affected companies to plunge by a combined $1.5 trillion in a matter of months at the low point a little while ago.
But now these Wall Street titans that made huge amounts of money from China’s debt bubble, from the wild property speculation, from monopolistic tech companies, from the hype and hoopla, from their dealings in China, well, they’ve had enough of these crackdowns.
A Wall Street delegation composed of top executives from Goldman Sachs, mega-asset manager BlackRock, PE firm Blackstone, Citadel, Fidelity, among others, had a three-hour powwow on Thursday with Chinese regulators that included the vice-chairman of the China Securities Regulatory Commission and the head of the People’s Bank of China…..