Home » [Finance Business World]Stock price rebounds Evergrande may be nationalized | Xu Jiayin | Lehman Brothers | Bonds

[Finance Business World]Stock price rebounds Evergrande may be nationalized | Xu Jiayin | Lehman Brothers | Bonds

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[Epoch Times September 24, 2021]Recently, the world is paying attention to Evergrande, and whether the Chinese Communist government will save Evergrande remains one of the focuses. According to reports from financial online media, Asia Markets, citing sources, the Chinese Communist Party intends to divide Evergrande into three entities for reorganization and be acquired by a state-owned enterprise. The relevant plan may be announced within a few days. Although the news has not been confirmed, Evergrande’s stock price, which has fallen continuously, also rebounded sharply on the morning of the 22nd.

In addition, Evergrande Real Estate also issued an announcement on the 22nd that it would pay a domestic bond interest of 232 million yuan on the 23rd. It did not mention how to pay it. It only mentioned that the interest payment method has been negotiated over-the-counter. This news also temporarily eased the market’s worries about Evergrande’s default. However, Evergrande still has a large amount of US dollar debt and interest that are about to mature.

So, can Evergrande land safely? Can the crisis be resolved? Today we will talk about these topics.

The Chinese Communist government sits idly by?

Regarding whether the CCP government will take action to rescue Evergrande, our financial expert, Mr. Mai, believes that the CCP government will definitely take action. It is only when and how it will take action. Beijing will not take action until Evergrande’s fall is unstoppable. And now, it should be time. Evergrande’s share price has fallen from the highest point of more than 30 Hong Kong dollars to more than 2 yuan, a decline of more than 90%.

Mr. Mai believes that Evergrande is different from Lehman Brothers. Lehman Brothers is an investment bank. It closed down because of excessive speculation and too much subprime mortgages. However, Evergrande is different. Evergrande’s fundamentals have no major problems. In many places, there are still many projects under construction. Its debt is RMB 1.97 trillion, but its assets are RMB 2 trillion, which has not reached the level of insolvency. Evergrande’s problems are mainly due to the “three red lines” announced by Beijing for real estate companies that prevent it from continuing to raise funds. So I was stuck.

Chinese financial scholar He Jiangbing expressed the same view in an interview with Deutsche Welle. He Jiangbing believes that the particularity of China lies in the fact that the government has many measures to resolve problems, which is completely different from those of a completely market-oriented country. Therefore, the most likely solution for Evergrande is to take over the business under the leadership of the administration. For example, the state-owned enterprises will take the lead and private enterprises will join. Split by region.

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A similar analysis was mentioned in a report in the Financial Times. The report quoted two anonymous executives of Evergrande saying that Evergrande might be taken over by local governments and large state-owned developers by region. One of the executives mentioned that banks must extend their loans to Evergrande. If they stop cooperating with Evergrande, Evergrande will immediately go bankrupt. But then, how will the government deal with so many unfinished projects? ? How to deal with so many retail investors?

Mr. Mai believes that Evergrande is likely to be nationalized because Xi Jinping has always said “not forgetting the original intention”, and this “initial intention” includes “adhering to the socialist road”. Xi Jinping should not continue to engage in capitalism, so he will attack private enterprises. , Has always emphasized to be a large state-owned enterprise. Therefore, it is a trend for these wealthy private enterprises to be nationalized.

We see that private enterprises such as Evergrande, Alibaba, Tencent, etc., are rich in the enemy’s country, but they are not like wealthy businessmen in the traditional sense. For example, Tencent has acquired and mixed shares of many companies, while Tencent is based in Hong Kong and controls many companies.

Everyone knows that Xiao Jianhua, who is from tomorrow’s department, was kidnapped from Hong Kong and returned to the mainland. Why didn’t he follow the normal procedures? The reason is that Xi Jinping cannot control Hong Kong. From the Jiang Zemin period to the Hu Wen period, Jiang Zemin and Zeng Qinghong’s forces have spread across all walks of life, especially the financial industry, for more than 20 years. The financial center of Hong Kong is controlled by Jiang and Zeng. After Xi Jinping came to power, he was naturally worried about the situation he couldn’t control. Therefore, Xi Jinping has been attacking Jiang and Zeng’s money bags and confiscating their money and power through nationalization.

In a report in the Wall Street Journal on the 23rd, it was mentioned that the reform and opening up proposed by Deng Xiaoping 40 years ago had created trillions of dollars in wealth for China, but it also breeds rampant corruption. The article quoted According to officials familiar with the focus of Xi Jinping’s work, in Xi Jinping’s view, private capital has now been allowed to do whatever it wants, threatening the legitimacy of the CCP’s governance.

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In addition, regarding whether Evergrande’s default will trigger a systemic financial crisis in China, Mr. Mai’s view is unlikely, because these big banks are all state-owned banks, controlled by the government, and the government will intervene to stabilize possible financial risks. . For those bad debts, they can be written off gradually, and they can be written off within a few years.

We have also seen that in the Bloomberg report, it was mentioned that after the outbreak of the Evergrande crisis, the Central Bank of the Communist Party of China increased its short-term cash injection into the financial system. On September 22, the central bank injected 120 billion yuan into the banking system through a reverse repurchase agreement, with a net injection of 90 billion yuan. This is equivalent to the amount on September 17 last week.

American economist Chris. In an interview with VOA, Christopher Balding mentioned that for Evergrande, the CCP government will provide some forms of emergency financial assistance. It is likely that state-owned banks will come forward to help different investors buy Evergrande’s Project to prevent it from evolving into a wider problem.

Affect the Chinese economy?

So will the Evergrande crisis affect the Chinese economy? As we all know, the real estate industry has always been an important driving force of China’s economy, accounting for about a quarter of GDP, and Evergrande owes suppliers, creditors and investors a total of more than 300 billion U.S. dollars. From this point of view, the Evergrande crisis will impact the Chinese economy.

Evergrande has about 120,000 employees, and some forums have revealed that Evergrande has laid off more than 35% of its employees. If Evergrande explodes, the upstream and downstream industries related to Evergrande also involve tens of millions of people, these people may also face Unemployment issues, and more unemployment will trigger a consumer crisis.

Moreover, it is not only Evergrande. Some views believe that the CCP’s three red line policies for real estate companies are very clear. From the perspective of China’s current real estate industry, a second Evergrande may follow.

However, perhaps in the short term, China’s real estate will not collapse because of the Evergrande crisis, because the CCP is the largest landlord and owns all the land rights, so real estate prices will not fall. The CCP has two trump cards in its hands: purchase restrictions and property tax.

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Everyone knows that in China’s first-tier cities, such as Beijing, Shanghai, Guangzhou, and Shenzhen, housing prices will not fluctuate too much, because the continuous influx of people will not affect housing prices. However, third-tier cities and remote areas may be affected. However, the CCP can relax restrictions on purchases. And just like family planning, some real estate professionals believe that sooner or later the CCP will release restrictions on purchases.

So, will the Evergrande crisis affect the world economy?

Affect the world economy?

Due to the Evergrande debt crisis, the rebound of the epidemic and the tightening of government supervision, on September 21, Bank of America lowered its growth forecast for China’s economy from 8.3% to 8.0%, and also revised its forecast for 2023 from 6.0. % Is reduced to 5.8%.

On September 15, Deutsche Welle reported that the German economic community was worried about the Evergrande debt crisis. The head of foreign trade at the German Chamber of Commerce and Industry (DIHK) mentioned that the bursting of the Chinese real estate bubble may indirectly affect German companies, because if the Chinese people’s enthusiasm for consumption cools as a result, then the sales of high-priced products including German cars , May also be affected.

China has a huge consumer market, and Evergrande is also a large real estate company. If Evergrande goes bankrupt, the chain of unemployment and consumer crisis triggered by the collapse of Evergrande may result in companies all over the world having to reduce production, triggering chain risks.

Some people believe that when Evergrande collapses, China’s real estate bubble may really be squeezed out. Once squeezed out, the development of China’s real estate industry will slow down, and the development of China’s economy will inevitably slow down. The world economy, especially raw materials, has an impact.

However, on the 22nd, Fed Chairman Powell said that the Evergrande crisis will not cause problems for US companies. Powell believes that the United States does not have much direct exposure, and China’s large banks do not have huge exposure. Although it may affect global financial conditions, he does not believe that US companies will be affected.

Institute of Finance and Economics
Planning: Yu Wenming
Written by: Chen Siyu
Editor: Wei Ran, Yu Wenming
Editing: Songs
Producer: Wen Jing
Subscribe to the World of Financial Business: http://bit.ly/3hvUfr7

Editor in charge: Lian Shuhua

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