What do a Chinese property developer and the U.S. government have in common?
The massive Asian real estate firm needs to pay some back, and Uncle Sam needs to be able to borrow more. How they meet or miss these obligations may dominate investor attention in the week ahead.
First, China real estate. Evergrande Group is proving to come up short of its grandiose name.
The company practiced the “borrow to build” strategy of real estate development on a grand scale. It owes $350 billion in all, but relatively smaller sums have been worrying global investors, including a $47.5 million bond interest payment due this week. It comes after an $83.5 billion mortgage payment due in the past week. The company has 30 days to make good on the IOUs.
The financial teetering of a real estate developer most American investors had never heard of before last week helped fuel a sharp one-day stock sell-off. Shareholders were able to shrug off the worries, but not the Chinese government.
According to the Wall Street Journal, local governments in China have been told to prepare for the economic and community ripple effects should Evergrande skip its payments and collapse. Chinese leaders are keen on containing any unraveling that may hurt housing prices, damage growing household wealth and cost the communist country jobs. Markets are on edge for any potential contagion spreading overseas.
Second, in Washington, D.C., Congress is running short on time to raise the federal government’s borrowing limit. The Senate is expected to vote this week on raising the debt ceiling. That is necessary to keep the government fully open later this fall when its credit will be maxed-out without action.
Democrats have a one-vote majority in the upper chamber thanks to the tie-breaking vote of the vice president. While Republicans oppose increasing the debt limit, the majority party on Capitol Hill probably can still squeak through the hike in time using a parliamentary procedure. But that will come at the cost of rejecting compromise ahead of the 2022 election cycle.
These two debt concerns are separate, but they both can cost investor confidence as the deadlines approach.
Tom Hudson hosts “The Sunshine Economy” on WLRN-FM, where he is the vice president of news. Twitter: @HudsonsView