Economist GMAT Reading Comprehension Challenge
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For many investors, debt in China is something to fear…snag assets from banks at a discount.
- Some view China debt as bad others as an opportunity.
- This split has sharpened recently with weak China economic data.
Both camps start from the same point….raised the spectre of deflation.
- Both sides agree that lending in China must be tamed.
- Credit has not been reigned in but already the economy seems to be contracting.
This, though, is where the small but hardy group…at knock-down prices.
- Although they would agree that the bad debt likely won’t get paid, the “China debt = good” group views the bad debt as a way to buy property very cheaply.
It is a niche market…normal in developed markets.
- Banks are cleaning up their balance sheets and improving their labeling of non-performing loans to match that of the developed market.
- With that the market is shifting in favor of buyers as supply has increased.
On the demand side…rare veteran of China’s bad-loan market.
- As recently as 2017 inexperienced buyers flush with cash were scooping up bad loans.
- They misjudged the value of the loans basing it on 100% realization of the market value of the collateral.
Many of these local investors have now exited…a consultancy based in New York
- Many investors have exited the bad loan market.
- Regulators and the bear market have played a role.
At the same time a few big foreign firms have started dipping their toes…pipes themselves seem to be in reasonable shape.
- The China loan market has improved considerably since the early 2000s.
- Some big firms are testing the bad loan market.
To highlight an opportunity in the Chinese debt market.
Because of improved regulation and depressed prices the Chinese loan market may provide a great investment opportunity.