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Chinese paradox: Why the real estate crisis in the country does not affect the global prices of raw materials?

Posted: Nov 9, 2021 08:23 GMT

The world prices of these materials remain at levels close to the maximum.

The Chinese real estate company Shimao Group has revealed that it will not meet its sales targets this year amid the debt crisis that the sector is experiencing and the tightening of regulation in the debt market undertaken by the Government of the Asian country.

The 13th Chinese company by real estate sales told investors on Friday that sales will be a 12% below schedule by 2021.

Evergrande avoids default for the second time in the last 7 days with a last minute payment

The company is planning to start buying its stocks and bonds to boost confidence, and will consider liquidating some of its commercial and hotel assets if prices are satisfactory, investors reported.

Given these reports, the company’s shares fell 13.3% on Friday and four of its corporate bonds traded in Shanghai plummeted more than 20%.

Meanwhile, a study by the risk rating agency Standard & Poor’s indicates that the debt crisis that the Chinese real estate giant Evergrande is experiencing could translate into problems paying their debts to a third of the companies in the sector in the next twelve months.

The real estate sector accounts for up to 30% of Chinese GDP, taking into account the cumulative effect of this industry. Therefore, the decrease in construction and sales rates cannot but affect the prices of the materials you use, such as concrete, iron and hydrocarbons.

However, despite the disruptions in the sector due to the risks of default by the most indebted Chinese real estate, Evergrande, and the fears of a domino effect, the world prices of these materials remain at levels close to maximum.

China urges Evergrande founder to use his own fortune to pay down the company's debtChina urges Evergrande founder to use his own fortune to pay down the company's debt

This is due to two factors: the inflation that it is depreciating almost all currencies, making raw materials more attractive as hedging investments; and the new cycle of raw materials, similar to that of the first decade of the millennium and tech stock bubble, which various experts have been predicting for years.

Michael Burry, an American investor known for predicting the 2008 mortgage crisis, compared the current situation in financial markets to the dot-com bubble and the speculative frenzy before the Great Depression. The American said last month that he has closed short positions in the stock of a large American company, choosing to “stay out of it.”

Dmitri Stepin

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Donna Miller

Donna is one of the oldest contributors of Gruntstuff and she has a unique perspective with regards to Science which makes her write news from the Science field. She aims to empower the readers with the delivery of apt factual analysis of various news pieces from Science. Donna has 3.5 years of experience in news-based content creation, and she is now an expert at it. She loves journalism, and that is the reason, she moved from a web content writer to a News writer, and she is loving it. She is a fun-loving woman who has very good connections with every team member. She makes the working environment cheerful which improves the team’s work productivity.

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