Reading Michael Pettis: What Does an Evergrande Meltdown Mean for China? [Ep. 119]
Eurodollar University
00:00
The Role of Debt in Chinese GDP Growth
Financial distress behavior affects not just Evergrande but the whole Chinese property sector. If it isn't quickly halted it could even drive property developers into insolvency. China's ability to achieve politically determined GDP growth targets requires moral hazard. The country's financial regulators cannot eliminate moral hazard until Beijing scraps the growth target and allows growth to fall to whatever underlying rate the economy can accommodate. This is because what she referred to in his quiche essay as genuine growth cannot generate enough economic activity to allow China to hit its GDP growth targets.
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