How significant is that that they can make this dollar bond payment. And was it tell you in terms of what it means for
offshore investors. Well it's certainly good news in the short term and it shows
that they're trying to minimize the damage on offshore investors in the in the medium term. I still think we're likely to see
some losses on the offshore bonds. But I do believe that authorities in China will seek to minimize the damage on
offshore creditors relative to onshore creditors for the reason that
post default Chinese property developers still need access to that market. And offshore investors are not subject to the kind
of strong arming to continue the flow of credit to developers that are onshore. Creditors will be subject to so therefore they
need to be treated with a relatively light hand if they're going to keep funding these developers in that market.
Well the other part to this and you touched on this already a little bit. Gabriel is that if they need the money they can
actually find a way to to come up with the money whether that STEM or somebody else.
That's exactly right. The key thing to understand about what's happening both with ever grand and and other Chinese developers
is that this is not just the business cycle at work. This is a policy induced slump in China's housing market. And that means
that policymakers could reverse the slump anytime they want to. So far they're choosing not to. And we saw that with the recent
credit data for September where they're really holding the line on mortgages and on developer loans even though the easy thing
to do in the short term right now would be to reverse course as they've done so many times in the past. But they're not ready to
do that yet. And I don't think major easing is going to come until early next year.
To your point on the policy exercise in the big news over the weekend is is China looking to expand now. The property tax
trials to several other areas of the country. I mean it's a bit strange and odd but doesn't that actually then exude confidence
that they are confident the system will hold up amidst all of these things that you already outlined there for us. I think it
does signal that this is a very significant reform. This is a.. An initiative that's been talked about but where
we've seen no significant progress or at least a decade. And we're finally seeing is something moving forward.
Now the devil is very much in the details about who will be taxed what the scope of the taxes which cities will be chosen
the tax rates. But this signals that they're willing to endure.
It's the latest signal. We've seen this all year really with whether it's the regulatory crackdown on tax or other measures
we've seen that they're willing to endure short term pain in order to do to solve some of these structural problems.
And so from that perspective I think it's positive. Even though this is going to be very cautious it could be 20 26 before the
tax is fully in place. Yeah I want to tell you this. You may have to wait five years right. For maybe any kind of substantial
nationwide property tax. April. Does that signal to you that maybe the government is not that determined to to wean the
economy off of real estate investment in the property sector overall. What does it tell you about the business model moving
forward or the growth strategy. The growth model I should say. Well as always with China economic reform it's two steps forward
one step back because there are so many stakeholders that stand to lose from this tax. That's why it's been stalled for so long.
And we know there was a lot of wrangling behind the scenes about how how big this was going to be to start out with. So you know
she is not all powerful. He can't just steamroll all opposition. But we're seeing him accomplish something here that previous
leaders failed to do. And you know we're going to see a nationwide properties act eventually is my forecast.
We were talking about you know companies like Fantasia that actually had the cash to pay their creditors but they decided to
default anyways with surprised the market overall and we talked to our R. R. Bloomberg opinion columnist really read about it.
It's like these probably numbers are lying flat. What. Why do you think they're doing that in a way. What kind of
repercussions would that have for the sector overall. Well to a certain extent there's a kind of game of chicken going
on between developers and the government so often weeds in the past. We've seen the government kind of flinch at the last
minute when distress really started to loom in the property market. They they eased up and they they resumed the flow of
credit. And there's an attempt right now to deal with moral hazard. And I mean to some extent we could see these actions by
Fantasia's as an a as an attempt to pressure the government too good to go back to that old playbook. But the judgment is that
the economy can endure this. I mean if you look at housing market housing sales for the entire year is still pretty strong.
It just started crashing over the summer but on its 12 month rolling basis they're still pretty strong. So the government is
in the same with local government financing. It hasn't fallen off a cliff yet. And so the government feels like it can hold on
long enough and that isolated defaults aren't going to cause a major contagion.