On December 6, China Evergrande announced the establishment of a risk mitigation committee with 7 members. The chairman is the chairman of Evergrande and the executive director Xu Jiayin, including the top executives of Guangzhou’s two major state-owned enterprise groups Yuexiu and Guangdong Holdings.
Bloomberg reported on December 6 that the long-awaited debt restructuring of Evergrande Group may finally begin.
On the evening of December 3, Evergrande Group issued an announcement on the Hong Kong Stock Exchange, clearly acknowledging that its US$300 billion overseas and domestic debt has become unsustainable and may default.
On the night of Evergrande’s announcement, the official website of the Guangdong Provincial Government announced that it had interviewed founder Xu Jiayin and was “highly concerned” about Evergrande’s inability to fulfill its responsibilities, and would dispatch a working group to ensure Evergrande’s “normal” operations.
Bloomberg’s report on December 6 said that before and after Evergrande’s announcement, the Chinese Communist Party’s regulatory authorities made a series of statements, but the content mainly involved how to control the overall impact of Evergrande’s debt crisis on home buyers, the financial system, and the economy. Not to take rescue measures.
On the evening of Monday (December 6), Evergrande’s two US dollar bonds are due to pay interest. One bill maturing in 2022 involves about US$41.9 million in interest, and the other bill maturing in 2023 involves about US$40.6 million in interest. Both US dollar bonds were issued by Evergrande’s indirect wholly-owned subsidiary Jingcheng Co., Ltd.
Regarding Evergrande’s “possible breach of contract” announcement, many regulatory agencies of the Chinese Communist Party responded that the risks of Evergrande mainly stem from “self-operating poorly” and “blind expansion”, which are individual risks. “Most real estate companies stick to their main business and operate. steady”.
On the evening of December 6, Sunshine 100 announced that a 10.50% senior note of the company due on December 5, with a total outstanding principal of 170 million U.S. dollars and a total unpaid interest of 8.925 million U.S. dollars, breached the contract;
On December 3, Chinese real estate developer Kaisa announced that it had failed to seek deferred repayment of a note with a total principal amount of US$400 million, putting it at risk of default;
On December 2, China Aoyuan, a mainland real estate company, issued an announcement stating that creditors demanded an early repayment of US$650 million due to the downgrade of the rating triggering some of the terms in the overseas loan agreement, but the company did not make the payment and did not reach other agreements with the creditors;
On the evening of November 29, China’s TPO50 real estate company, China Fortune Land Development, which was caught in a liquidity crisis, issued an announcement stating that because it failed to repay the creditor’s rights of China Jingu International Trust Co., Ltd. with a principal amount of 1.910 billion yuan, Jingu Trust issued a statement to China International. The Economic and Trade Arbitration Commission applied for arbitration.
On the same day (November 29), China Fortune Land Development announced its new total overdue debts, showing that China Fortune Land Development and its subsidiaries have added 7.325 billion yuan of debt principal and interest that failed to repay bank loans and trust loans as scheduled. As of the announcement date, the company has failed to repay the principal and interest of its debt on schedule totaling 101.304 billion yuan, which means that its overdue debt has exceeded 100 billion yuan.
These cases show that China’s Evergrande debt crisis has triggered a domino effect, but this is only the tip of the iceberg of Chinese real estate debt. According to investment bank Nomura’s estimation, China’s real estate industry debt is as high as more than 5 trillion US dollars (32 trillion yuan).
According to a report released by Standard & Poor’s Credit Ratings on December 2 (Thursday), the total rigid liabilities of China’s real estate industry are about 24 trillion yuan, and the industry’s annual controllable cash inflow through sales is about 8 trillion yuan. Although China’s real estate industry is capable of self-rescue as a whole, there is little room for fault tolerance; some private real estate companies are worrying about their self-rescue ability. In extreme cases, about 50% of the sample companies are unable to cope with the downward pressure on the industry and still cannot repay their full-caliber debts after liquidating their inventories.
The global market faces challenges
As more Chinese real estate developers default on their debts, experts warn that Evergrande’s debt problems have begun to produce dangerous spillover effects.
Bloomberg reported on December 6 that whether the Chinese government can coordinate the completion of Evergrande’s debt restructuring while avoiding the impact of the entire real estate industry is a test facing the global market, as the real estate industry accounts for nearly four in China’s GDP. One part.
In its November monthly report issued on November 22, the Bundesbank warned that if there is a serious crisis in China’s real estate industry, the German economy will also be significantly affected.
The Bundesbank wrote that China’s Evergrande debt crisis is shaking up the entire Chinese residential property market, and the long-term and deep recession of the real estate market will seriously affect the Chinese economy. As a result, Germany’s exports will decline, and economic output will fall by 0.6%. Economies that are highly dependent on China’s trade will suffer even greater losses. For example, Japan’s GDP will decline by nearly 1%, and South Korea’s GDP will decline by more than 2%.
The Federal Reserve stated on November 8 that pressures in China’s real estate industry, including Evergrande, which is heavily indebted, may affect the United States if it spreads to China’s financial system and become a potential risk threatening the U.S. economy.
There is also a risk point in Evergrande’s debt, that is, the Chinese Communist government may not fully grasp the debt situation of Evergrande and various real estate companies. For example, Evergrande’s announcement on December 3 (Friday) mentioned the guarantee Evergrande provided to the joint venture Jumbo Fortune Enterprises’ 260 million US dollars bonds. Until a few months ago, many Evergrande investors did not even know about this. The existence of obligations.
The CCP intends to preserve the banking system
On December 3, the Guangdong Provincial Government interviewed Xu Jiayin, the founder of Evergrande, and agreed to send a working group to Evergrande.
Wang Jian, a veteran financial media person, told Free Asia that the main purpose of the Guangdong Provincial Government to take over Evergrande was to prevent assets from being seized. Once a business problem occurs, all creditors will come to the door to get their valuable assets back. The takeover is to control and prevent this from happening. Find a way to return valuable assets to the bank, because the bank is a government agency, and he cannot let Evergrande go bankrupt in a disorderly manner.
Wang Jian said that Evergrande’s on-balance sheet borrowing was 2 trillion yuan, and off-balance sheet borrowing was 1 trillion yuan, a total of 3 trillion in debt, and all of them were bank loans. %, if Evergrande goes bankrupt, it must be the bank that has the greatest impact.”
Wang Jian said that the impact of real estate on the entire economy and financial markets will eventually affect the RMB exchange rate. From a macro perspective, if the financial system is impacted and there are systemic financial risks, the renminbi will definitely be impacted.
On December 6, Xi Jinping, General Secretary of the Communist Party of China, presided over a meeting of the Political Bureau of the Communist Party of China Central Committee to analyze and study the economic work next year, emphasizing the need to take the lead with stability and seek progress while maintaining stability.
The meeting stated that next year, it is necessary to “maintain economic operations within a reasonable range”, continue to do a good job in the “six stability” and “six guarantees”, maintain “social stability”, and welcome the 20th National Congress of the Communist Party of China.
This meeting of the Communist Party of China mentioned the issue of real estate and proposed “promoting the construction of affordable housing” and “supporting the commercial housing market” to “satisfy the housing needs of home buyers.” It is necessary to allow “a virtuous circle of the real estate industry”.
The British BBC reported that China’s Evergrande’s plight, coupled with the consequences of crazily borrowing in the entire real estate industry for decades, will undoubtedly harm China’s economy.
According to Michael Pettis, a professor of finance at Peking University and a researcher at the Carnegie Foundation, Chinese real estate accounts for 25% to 30% of the country’s GDP. The most worrying thing is that 80% of Chinese household wealth is real estate. , Relying on real estate has made China’s economy more vulnerable.
Paul Krugman, a well-known American economist and Nobel laureate, published an article in the New York Times entitled “Is China in big trouble?” that China has created a huge real estate bubble to cover up deeper imbalances , It is hard to imagine that all this will have a happy ending.
The article believes that China’s real estate investment has far surpassed the level of the United States during the peak of the real estate bubble in 2000. Everything seems unsustainable. Because of this, many observers worry that the debt problem of the real estate giant Evergrande is just a broader economic crisis. Prelude.
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