27 Sep 2021

China sends shockwaves across global markets

China again demonstrated the potential of its impact on the global economy as its actions and signals sent ripples through world markets last week. China’s central bank reiterated last Friday that all cryptocurrency-related transactions are illegal and will be outlawed, delivering the clearest signal yet of the country’s determination to crack down on the industry to “preserve economic, financial and social order”. The move comes after Chinese authorities banned cryptocurrency mining earlier this year.

Chinese authorities have said they will coordinate their efforts to ensure the end of cryptocurrency trading.  The People’s Bank of China stated that cryptocurrencies may not be traded and that all crypto-related transactions, including those conducted by Chinese citizens overseas, are illegal.  Financial institutions, payment businesses, and internet enterprises will be prohibited from aiding cryptocurrency trade, and risk monitoring will be strengthened.

Following the news, Bitcoin dropped by as much as 5%, while other cryptocurrencies plummeted.  Shares of cryptocurrency and blockchain-related companies, all publicly traded in the United States, were also under pressure declining between 4.1% and 5.1% on the news.

The global real estate markets were also uneasy as Evergrande, China’s mammoth property developer, is showing signs of a downfall, one of the largest ones so far in China.  The firm is facing a mounting debt reaching $305 billion with significant coupon payments on bonds due this week.  Late payments to suppliers, employees, and interest on loans have raised market concerns of severe liquidity problems and largescale default.  China Evergrande shares are down to 10% of their value only a year ago, while its dollar bonds are trading at 60-70% of their nominal value.

The demise of China Evergrande may significantly affect the domestic real estate market, as prices would plummet, potentially bringing down other developers.  The global banking and finance sector would also be affected, as the sheer number of financial institutions involved is staggering.