In yesterday’s most underreported story, which we noted first thing yesterday morning, China is on the verge of a second bond default just weeks after Solar cell maker, Chaori Solar, defaulted earlier this month, this time Zhejiang Xingrun (appropriately abbreviated ZX): a real-estate developer which just collapsed after its largest shareholder was arrested and which has some CNY3.5 billion in debt and furthermore the company was revealed to have been taking deposits from individuals offering annual interest between 18% and 36%.
But while Chaori was left to crash and burn, ZX may need a bailout for the same reason that we have always said – namely that China is desperate to keep kicking the can for as long as possible as any glimpse under the hood will reveal the true Chinese credit bubble nightmares, best summarized (previously) in the following:Â “CITIC Trust tried to auction the collateral but failed to do so because the developer has sold the collateral and also mortgaged it to a few other lenders.” Which is why overnight the FT reported that none other than the Chinese central bank was scrambling to bail out the lender in order to avoid the inevitable liquidation avalanche that will begin as soon as the realization hits just how far China’s non-existent collateral is stretched out.
Officials from the government of Fenghua, a town in eastern China with a population of about 500,000, the People’s Bank of China and China Construction Bank, which was the main lender to the developer, were on Tuesday thrashing out ways to repay the company’s Rmb3.5bn ($566m) of debt.
Not surprisingly, local government officials were keen to downplay Xingrun’s fate, which quickly added fuel to jittery markets after Chaori defaulted previously. The “situation is not that serious yet”, said a Fenghua local government official to the FT who only gave her surname Wu. Failure of a small property developer is not unusual in China or even in Zhejiang Province, where Xingrun is based. Well, it is if people start asking questions.
