The Grande Illusion

Like Hollywood, the western press is invested in narratives and emotional manipulation. Unlike Hollywood, that press has no compunction about skipping the third act of a story, if it doesn't fit that narrative.

And so just as suddenly as Evergrande emerged as the scary China story dujour, it has all but dropped off the radar. Focus instead on China's power outages, please.

There will be a sequel, despite the undramatic, unreportable, decidedly un-Lehmanesque ending unfolding, in which SOEs are buying up Evergrande's assets, and the government is bailing out the little guys who bought apartments. Foreign bond-holders are almost certain to take a haircut, a development which will no doubt power many a two-minute hate piece on relevant network news segments.

"China corporate bond defaults were at a peak last year, when the government backed up its pledge to de-lever from COVID spending by refusing to float businesses with cheap money," says Edward Lehman. "Foreigners holding Evergrande paper in 2021, and who didn't take that data into consideration, have hopefully learned a lesson: China does not spare Wall Street to spoil its broader economy. But to label China as "un-investible", as many pundits are doing, is patent overreaction, and contravened by the many clients we have who are advised of relevant China policy in advance, and manage risk accordingly." Rico Li