China’s 2nd Bond Default, EU and US imposes Sanctions on Russian Officials

China’s first bond default occurred just about 2 weeks back.

Today the Bloomberg reports a second company to declare a bond default. (hat tip zero hedge)

A closely held Chinese real estate developer with 3.5 billion yuan ($566.6 million) of debt has collapsed and its largest shareholder was detained, said government officials familiar with the matter.

Zhejiang Xingrun Real Estate Co. doesn’t have enough cash to repay creditors that include more than 15 banks, with China Construction Bank Corp. (939) holding more than 1 billion yuan of its debt, according to the officials, who asked not to be named because they weren’t authorized to discuss the matter. The company’s majority shareholder and his son, its legal representative, have been detained and face charges of illegal fundraising, the officials said.

The collapse of the company, based in the eastern town of Fenghua, adds to concern of strains in the nation’s real estate sector and comes less than two weeks after the first bond default by a Chinese company. Shanghai Chaori Solar Energy Science & Technology Co.’s inability to repay its debt may become China's own “Bear Stearns moment,” prompting investors to reassess credit risks as they did after the U.S. securities firm was rescued in 2008, Bank of America Corp. said March 5. 

The second incident in just two weeks with much more to come.

But China’s stock markets looked the other way and instead zoomed ahead. Why? Because of reports of a government stimulus (again)

From another Bloomberg report  (bold mine) 

China’s stocks rose to the highest level in a week, led by property, auto and cement companies, after the government outlined urbanization plans.

China Vanke Co. and Poly Real Estate Group Co., the nation’s biggest developers, advanced more than 1 percent, while Anhui Conch Cement Co. gained the most in a month. SAIC Motor Corp. led a rally for automakers. China will invest more than 1 trillion yuan ($163 billion) redeveloping shantytowns this year, state broadcaster China Central Television reported yesterday.

Have a debt problem? Easy, for modern day government the solution has just been to borrow and spend. Problem solved.

How many more stimulus in the face of waves of debt defaults just to boost the markets? Interesting stuff.

Now to the Ukraine political crisis.

In a referendum recently held, people from Crimea voted overwhelmingly (96%) to secede from Ukraine and join Russia. But the Western government refused to acknowledge the outcome and instead imposed sanction on Russian officials.

From Reuters:

The European Union is to impose sanctions including asset freezes and travel bans on 21 officials from Russia and Ukraine after Crimea applied to join Russia on Monday following a weekend referendum, Lithuania's foreign minister said.

Crimea's leaders declared a Soviet-style 97-percent result in favor of seceding from Ukraine in a vote condemned as illegal by Kiev and the West.

After a meeting lasting around three hours, the EU's 28 foreign ministers agreed on a list of those to be sanctioned for their part in Russia's seizure of Crimea and Sunday's referendum on joining Russia.

The US have joined the EU. From the CNBC

U.S. President Barack Obama imposed sanctions on 11 Russians and Ukrainians on Monday blamed for Russia's military incursion into Crimea, including two top aides to Russian President Vladimir Putin.

Obama's order freezes any assets in the United States and bans travel into the country of 11 people named as responsible for the Russian move into Ukraine's Crimea region.

Among those sanctioned were ousted Ukraine President Viktor Yanukovich and Putin aides Vladislav Surkov and Sergei Glazyev.

And I thought the West has been about promoting 'democracy'?

As the former US congressman Ron Paul wrote,

The Obama Administration’s policy toward Ukraine is hypocritical. The overthrow of the government in Kiev by violent street protests was called a triumph of democracy, but when the elected parliament in autonomous Crimea voted last week to hold a referendum to decide its future, President Obama condemned it as a violation of international law. What about the principle of self-determination, which is also enshrined in international law

So democracy seem as really about whose nests are being feathered.

So far, sanctions has been directed only to officials. But one thing can lead to another. The question now is how will the Russian leadership react? What if Putin and co. retaliates?  Will this not lead to an escalation? Will this not bring about greater risks of a collapse in global trade, and worse, war? 

Again Dr. Ron Paul (from the same article) echoing the great French classical liberal Frederic Bastiat

Though many mistakenly believe that sanctions are a relatively harmless way of forcing foreign countries to do what we say, we should be clear: sanctions are an act of war.

Don’t worry be happy. 

US and European stock markets seem to have discounted the above risks and appear to be relishing the moment by markedly bidding up equity assets. 

In today's central bank supported equity markets which looks like a Truman Show, Bad news is good news.