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Evergrande is the first domino of something worse

Domino 2: Companies Similar to Evergrande. 

A significant number of companies are borrowing above 20% rates and can no longer fund from the dollar funding market. 

These companies can either default, they can try to sell assets, they can go to government banks to borrow money (but this route is currently closed until January) or they can go to the government. Today there are 35 “significant” companies, as per the strategist’s definition, and 13 are saying in the dollar funding market that they should not be refinanced. 

This is like the sub-prime equivalent; one has gone down, and the others are feeling the knock-on effect. These companies are 12.5% of the current market cap of the property sector. The amount of market cap that has been lost is $250 billion and including Evergrande is $500 billion to give some scale of numbers.  

Domino 3: Minsheng Bank. 

In 2008, Bear Stearns imploded due to subprime debt. 

Citigroup is watching Minsheng Bank, which has lost over half of its market cap over the last few months. It is currently modelling a 20% probability of default. It could create contagion effects within the banking system.  

Domino 4: Small Banks. There are numerous banks in China that are very similar to Northern Rock.

Domino 5: Ping An. This is a private insurer with a lot of problems. 

Domino 6: The Equity Market. There are $300 billion worth of margin loans. 

Domino 7: Big Banks


Domino 10: The Crisis Goes Global.

This is an extreme scenario which the authors don’t believe will happen. It would not be in Beijing’s interest to let events progress that far. But it’s also unclear at what point the Chinese government would intervene.

John Mauldin 8 October 2021



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