Let's discuss China's economic situation because it is far more complicated than Evergrande.
1. I would recommend everyone watch the movie "The Big Short". What stood out to me was not the real estate bubble, or the collapse or even the "too big to fail" although all of those were really enlightening parts of the story. What stood out was once the key metrics began moving on which the securities were based the price of the security and the rating did not move. That was a blatant, in your face lie by the entire system. It would be like 2 + 2 = 4 and then learning that 2 +1 = 4 and then 2 + 0 = 4. What I learned is that they will lie, they will openly lie, and they will continue lying until the entire house collapses on top of them. Termites are real, you can ignore them, you can claim they aren't there, but eventually the house will collapse. Now if this is true in the US you can be sure it is really true in China. Think of how much they control the media and what is said. Their ability to lie and practice of lying is so much more developed than the US that I fully expect them to do what we saw in "the Big Short", only longer and more effectively.
2. Evergrande is only the tip of the iceberg. The government in China is as corrupt as anywhere on earth. Power corrupts, absolute power corrupts absolutely. What we have learned is that all of these provincial government officials make money on construction projects. They take bribes to approve the projects, they take bribes to overlook code violations, and because of this they promote all kinds of projects that should never be built. The Evergrande collapse is simply the tip of the spear, their loss is calculated in billions of dollars, the bad government projects are calculated in trillions of dollars. The scale of the problem is easily ten times greater than what they want to admit.
3. Rapid growth in the economy was able to hide all kinds of structural problems. It is like issues being hidden because the tide was coming in and the water was rising. Now, because of the pandemic, the tide is going out and it is revealing massive corruption and idiotic projects. For example, if you are projecting 7% growth annualized for the next ten years you will have a very different target than if the real growth is less than 2%. But it is worse than that, as China began threatening war many companies began pulling their operations out of China. And it got even worse when Australia refused to sell China coal. They were suffering power outages and couldn't keep factories open cutting production even more. Think of China's economy as a train and they are going up a 2% grade. They have to go up this hill, if they don't the whole economy will roll backwards and crash. Meanwhile they are carrying a very heavy load trying to mee the unrealistic projections of 7% growth projections. What is powering this train is the coal and by cutting the supply of coal they can no longer get enough power to go up that 2% grade. The first sign is Evergrande bankruptcy, but in reality there are very many more bankruptcies that preceded this, think of them as dominoes and as they fell we got bigger and bigger dominoes. As every domino falls it becomes harder and harder to meet that 2% goal.
4. At the same time China has had very bad harvest seasons year after year. Last year they revealed that the corrupt provincial rulers had lied about the stock piles of food, another way they get rich is to sell the food to the black market and pretend it is still there in the granaries. As a result we are seeing incredible, historic levels of inflation. This may bother Americans and sour them towards Biden, but in China it is going to push them towards widespread famine.
5. Meanwhile revelations of genocide and the pandemic being developed in a bioweapons lab are being revealed. So then by itself Evergrande is a bankruptcy that in other years China could have weathered but not now. No doubt they are hoping that the Olympics would be a bright spot in a very gloomy forecast, but with revelations of the genocide going on in China as well as their involvement in the pandemic I suspect the demands to boycott the olympics will grow daily. Imagine if the rest of the world chooses to boycott the olympics, it will be a gut punch to China. Cancel culture eats its own. The NBA and all the woke corporations that have been compromised by their involvement with China are being exposed. Their lies and their hypocrisy will all cause them to see their revenue shrink. For China anemic growth is catastrophic, imagine what it would be if the economy actually shrunk!
6. They have done all this while threatening to attack Taiwan. What many may not understand is that Taiwan has positioned itself as a really critical partner in the manufacture of the most advanced computer chips in the world. The entire developed world will fight to keep that from happening and the easiest thing to do is to impose sanctions. Imagine sanctions on top of cancel culture on top of inflation on top of the bankruptcies.