Why does this matter? First, this is a potential default by, as the FT note, the world’s biggest property developer. What that obviously implies is that property might not be worth what people thought it was. The financial obligations has might be expressed in renminbi (although this debt seems to be secure, at least for now) or dollars (which is the part currently at risk) but the underlying asset is a real thing – a building – and that is no respecter of monetarily recorded value attributed to it, which is only the expression of an opinion at a point of time.
Except it’s not a bond issue secured against a specific property. It’s a general bond supported by, at most, a floating charge against the company.
But that there is massive asset overvaluation on corporate and bank balance sheets is to me obvious: low-interest rates, financialisation, over leveraging and exuberance in the face of reality has left markets and property over-valued as supposed stores of value for the excess of global savings that now exists, and which will surely be subject to a serious price adjustment and a haircut for the wealthy sometime soon.
But that’s cool, isn’t it? Because it means we don;t have to go tax that wealth off them, the market is going to solve the problem for us.