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When will China flinch and stop the Evergrande meltdown?

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Beijing has been sitting firmly on the sidelines as real estate developers falter on their debt repayments, tumbling like dominoes.

The central government is reluctant to bail out the likes of China Evergrande Group, asking local officials to brace for their demise instead. But corporate bond traders are unleashing the worst sell-off in a decade. At what point will China blink? Or won’t it?

Don’t fret. China’s debt is at 224% of gross domestic product, one of the highest percentages in the world. If it is at all serious about cutting that down, it will have to relent and do something dramatic. Maybe even bail out Evergrande.

But no country can deleverage in a deflationary environment. That’s Fixed Income 101. In the case of developers, their ability to service debt naturally improves if they can charge........

© The Japan Times

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