The Chinese Lehman Brothers Moment

The winds have turned and, again, the world's second-largest economy appears to be in trouble. The two biggest Chinese construction companies are deeply indebted. One of them filed for bankruptcy, and managers are delaying payments to investors.

This is being called the Chinese Lehman Brothers moment, because it could spill over into several sectors and cause a major crisis. With a global domino effect, China seemed to be doing very well, leading positive data and being 100% with the alliances through the BRICS, but the hole is much deeper, and the problem surfaced after negative data began to be released in the last few weeks.

The crisis in China is on fire. The real estate sector, which accounts for 25% of China's GDP, is imploding and unpaid debts are piling up. Chinese construction company Evergrande is back in the news because it has just filed for bankruptcy protection in the United States, claiming it is undergoing restructuring.

This measure serves to protect the company from being sued by creditors or having its assets frozen. Evergrande, which already asked the Chinese government for help in 2021, is now rushing to ask the US government for help. According to Reuters, Evergrande's total debt amount exceeds $300 billion. The company wants to meet with its creditors later this month to propose a new restructuring plan.

As if that weren't enough, Evergrande's biggest competitor, Country Garden, has defaulted on its loans and is now $192 billion in debt. Although it was China's top selling homebuilder last year, real estate prices are in free fall. The company was involved in more than 3000 construction projects in China, almost 4 times more than Evergrande. There is a risk of it being considered in default.

In September, when more outstanding payments are due, the debt could end up increasing much more. Both Evergreen and Country Garden seem to have followed that model of doing everything to become billionaire market leaders, but behind the scenes they have billions of debts. After all, no one is too big not to break.

In addition to Country Garden, several other companies in the Chinese real estate sector have been close to default in the last 2 years. Companies accounting for 40% of China's real estate sales have entered the insolvency zone.

So, who's going to take the hit? Who lent money to these builders to build houses that didn't sell? Is this why financial institutions that provide loans to these construction companies, such as the Zhongze group, are also failing to pay investors in their trust? Do you see the ripple effect of study? The amount overdue at 11 already reached 110 million yuan, or 15 million dollars.

The NGOs that were part of the NGOs managed more than US$87 million in funds for corporate clients and high net worth individuals by the end of 2022. in the same style they offered high returns to customers through services that functioned as shadow banks. They ran outside the formal banking system and paid above-average interest, so you can already see that the risk of these operations is enormous.

Meanwhile, the Chinese government suddenly decided to cut interest rates to stimulate the economy, while the yuan began to devalue. That's because, if interest and data can be manipulated, the escape valve is always the currency. It starts to devalue and show reality until the king of Dali, who has invested more than 3 billion dollars in Chinese companies, says that the country is overdue for a debt restructuring. China has nearly doubled its debt over the past 5 years. Debt to GDP is now at a record 281%. If China's GDP in 2021 was 17 trillion dollars, in 2022 it was 18 trillion dollars. This means that now the Chinese debt, which is even difficult to calculate because the Chinese government omits various data, is around 51 trillion dollars.

It was precisely in response to scenarios like this that Bitcoin was created. Who hoards Bitcoin? The scarcest bearer asset on the planet, which does not change its properties even in the face of the worst scenarios, continues to observe from afar all this mess created by central banks and fund managers. Bitcoin is a long-term marathon, after all, in economics and geopolitics, things happen slowly. Anyone who is prepared for the changes in the coming years will be better able to surf the new waves backed by Bitcoin.