China’s Crackdown on Debt, Tech & Evergrande Sends Frazzled Wall Street Titans to China
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.
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