Polymathย โขย 27d
โกโกEVERYTHING TURNS OUT TO BE BUBBLE๐ซง๐ซง This is what happens when you don't learn from the past the story of "EVERGRANDE" the biggest real estate firm once in China with a valuation of more than $45bn LGFVs, Evergrande, and Chinaโs Hidden-Leverage Spiral (A Case Study) From 2008โ2024, Local Government Financing Vehicles (LGFVs) helped Chinese provinces borrow off-budget to fund infrastructure and land development. As growth slowed and property sales collapsed, LGFVsโ cash flows proved weak versus towering debts. The 2020 โThree Red Linesโ policy tightened developer leverage, exposing fragile funding loops between developers (e.g., Evergrande), LGFVs, banks, and local governmentsโculminating in developer defaults, LGFV stress, and Evergrandeโs 2024 liquidation order and 2025 delisting in Hong Kong. Background What are LGFVs? Special-purpose, local SOEs created to borrow for public projects when local governments face legal borrowing limits. They raise funds via bank loans, trust products, notes/bondsโoften collateralized by land or expected land-sale revenues. Scale: Estimates vary widely; credible ranges by think tanks and ratings agencies place local + LGFV debt well above ยฅ60T by end-2023, with some analyses inferring ยฅ75Tโยฅ111T (โ75%โ111% of GDP) when including bank loans; policy commentary in 2025 cited ~ยฅ44T for LGFVs alone. Stress signs: Public LGFV bond defaults were rare, but non-bond obligations (commercial notes, bank loans) saw frequent payment strains; substitution and maturity extensions eased near-term risk, but structural fiscal risk remained. The Fall (2020 โ 2023) In 2020, Beijing imposed the โThree Red Lines Policyโ: 1. Debt-to-asset ratio โค 70% 2. Net gearing โค 100% 3. Cash-to-short-term debt โฅ 1 Evergrande failed all 3. Couldnโt borrow โ liquidity crisis. 2021: Defaulted on bonds โ worldโs most indebted developer ($300B liabilities). Suppliers, homebuyers, investors trapped. 2022: Sales collapsed. Ghost cities grew. 2023: U.S. & Hong Kong courts ordered liquidation of Evergrande assets abroad. people never learn from past similar to 2008 MBS. stories here #Mortgage#debt#Low liquidity
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