Letting the Pawns Fall?

Published on Author kuveke

China Real Estate Default

Much attention has been shown to China’s companies in the past few weeks after Chaori was allowed to fail. As expected a number of small firms have teetered on the edge of bankruptcy and it was only a matter of time before news of another company in danger of failing broke headlines. Well the wait is over. Zhejiang Xingrun Properties,a real estate firm, is preparing to default on $565 million in debt. The Chinese government has already made a statement saying that it would not be interfering in the matter in spite of the fact that a majority of the debt is owned by state owned banks.

The fact that Zhejiang is a real estate firm highlights the government’s decision to move to a more free market as well cut the excess out of the markets that have become over saturated with supply, such as has been the case with energy and real estate. Real estate prices growth is are slowing so cutting the excess out now may also be a preventative measure to discourage speculation with excess risk in the real estate sector further down the road.

Further reading on CNN

One Response to Letting the Pawns Fall?

  1. Note that bankruptcy is not the only means of resolving things; what tools creditors use depend on legal structures (lots of variation across countries) as well as the nature of the firm. When there are very few creditors, work-outs are more common, at least when the underlying business is viable. When the situation is hopeless, then there may be no point to “bankruptcy” as a legal step except (for example) as necessary to be able to write off losses against taxes