[Epoch Times August 21, 2021]Hello, everyone, it is 6:30 pm on August 20th, Eastern Time, August 21st, Beijing Time. Welcome to chat about current affairs every day. I am Sydney (Wang Yuhe); I am Qin Peng.
Today’s focus: Are you finally afraid? The high-level CCP urgently halted the Anti-Foreign Sanctions Law of Hong Kong and Macau; the real estate giant Evergrande was interviewed, which shocked the real estate industry and the financial sector.
Sydney: This Tuesday (August 17th), the Central Television of the Communist Party of China reported that the National People’s Congress plans to discuss the inclusion of the Anti-Foreign Sanctions Law into the Basic Law of Hong Kong and Macau. However, on Friday, the Chairman’s meeting of the CCP decided not to vote for the time being. The official said it was to amend the law to make the law enforceable. However, outsiders believed that the Chinese concept stocks were sold on a large scale and the CCP was afraid that foreign capital would leave Hong Kong on a large scale. The legislation was urgently stopped. Why are international capital and business so afraid of this law?
Qin Peng: China’s leading real estate company Evergrande was interviewed by the Central Bank of the Communist Party of China on Thursday (August 19), which shocked the real estate industry and the financial sector. Is this the first sign of the collapse of China’s real estate industry, or the life and death of Evergrande’s boss?
Beijing urgently suspends the “Anti-Foreign Sanctions Law” of Hong Kong and Macau. Are you finally afraid?
Sydney: Because the Western countries led by the United States are focusing on the human rights issues caused by the CCP, including Xinjiang, Hong Kong, etc., and imposing multiple sanctions on CCP companies, entities and individuals. Therefore, the National People’s Congress of the Communist Party of China voted and passed the “Anti-Foreign Sanctions Law” on June 10 to respond and allow relevant government departments to add foreign people or organizations to the sanctions list.
Since Hong Kong and Macau are special administrative regions, this law should not be applicable. However, Beijing intends to extend the law to Hong Kong and Macao. The Standing Committee of the National People’s Congress of the Communist Party of China will meet in Beijing for four consecutive days starting on August 17. The meeting included deliberations on the draft of the Anti-Foreign Sanctions Law included in Annex III of the Basic Laws of Hong Kong and Macau. It was originally said that the draft was expected to be passed before the closing of the meeting on the 20th.
But what was unexpected to the outside world was that in the morning meeting on the 20th, the authorities urgently stopped voting on the draft. Sing Tao Daily, a pro-China newspaper, stated that the reasons for not voting on the draft include the complexity of the implementation and the lack of mature discussions from all walks of life in Hong Kong. The South China Morning Post also quoted sources as saying that the central government “wants to hear more opinions.”
Of course, what is the actual reason? The analysis of the overseas media is quite consistent, that is, they are worried about a large amount of foreign capital fleeing Hong Kong. According to you, the CCP is afraid.
Qin Peng: Yes. In the past few months, we have seen China concept stocks continue to plummet. On Friday (20th), the Hong Kong Hang Seng Index fell below 25,000 points, once fell by more than 700 points, and China concept stocks continued to be sold.
The overall market value has decreased by RMB 7.09 trillion
According to statistics from the mainland financial circles, from January 1 to August 17, 2021, the Greater China stock market, including A-shares, Hong Kong stocks, and US stocks, has a net decrease of 7.09 trillion yuan in overall market value. China’s annual GDP is now 100 trillion yuan. The RMB, they said, if the GDP growth rate for the whole year is 7%, “it can be roughly understood that this year is nothing.”
During this period, not only were US-funded funds selling the stocks in the process, Deutsche Bank also joined the sell-off recently, and it is said that the funds involved reached 240 billion Hong Kong dollars.
Once the “Anti-Foreign Sanctions Act” is passed, the CCP will face the problem of decoupling Hong Kong and the United States. Therefore, even Carrie Lam was scared. She previously supported this legislation, but on August 17th, she said that if the Anti-Foreign Sanctions Law is passed into Hong Kong’s Basic Law, it may cause worries. Therefore, she suggested to the Standing Committee of the National People’s Congress that it should go through a “local legislation method”. To implement.
Expert: Once foreign capital leaves China’s economy, it will collapse
Sydney: Former Hong Kong senior banker Wu Mingde told Radio Free Asia that once foreign investment completely leaves, the Chinese economy is bound to collapse, and there is no Hong Kong economy to transfuse the Chinese economy.
There is a lot of discussion now that if Hong Kong implements the Anti-Foreign Sanctions Act and international banks with operations in Hong Kong enforce US sanctions, they may face pressure due to the law and need to “choose sides” to see if they want to implement the Chinese side or US sanctions.
For example, the United States sanctioned a number of Hong Kong officials last year and prohibited American companies or companies with business in the United States from having business dealings with the sanctioned persons, including Hong Kong Chief Executive Carrie Lam. Carrie Lam revealed a few days ago that she no longer has a bank account and the Hong Kong government needs to pay her salary in cash.
Although the sanctions imposed by the United States have no legal effect in Hong Kong, the provision of services by financial institutions in Hong Kong to these sanctioned persons may result in penalties by the United States and affect their business in the United States. Therefore, Hong Kong banks, including Chinese banks, still choose to comply with the US sanctions.
Forcing foreign banks to stand in line
Now, if the CCP implements the “Anti-Foreign Sanctions Law” in Hong Kong, the situation of foreign banks in Hong Kong will be very embarrassing and they cannot be handled in accordance with local laws, or they will be punished by the CCP.
Qin Peng, do you think that if international capital and companies in Hong Kong are forced to stand between China and the United States, how do you think these companies will choose? What impact will it have?
Qin Peng: The answer is self-evident. Let me give you an example. Last year, the United States imposed sanctions on a number of Hong Kong officials, prohibiting American companies or companies with business in the United States from having business dealings with sanctioned persons, including Hong Kong Chief Executive Carrie Lam Cheng Yuet-ngor. Affected by the sanctions, Carrie Lam later revealed that she had no bank account and the Hong Kong government needed to pay her salary in cash.
Well, many people may think that there are many Chinese banks in Hong Kong that can help these sanctioned officials. However, all Hong Kong banks have chosen to comply with US sanctions, including Chinese banks such as Bank of China.
Agence France-Presse also quoted people in the banking industry as saying that if they choose to implement sanctions from China or the United States, banks will choose to implement sanctions from the United States because “it is too important for banks to use US dollars.” U.S. sanctions can prohibit these banks from using US dollars for settlement, which is equivalent to stifling their international settlement function and cannot do international business, so of course these banks are afraid.
Sydney: Hong Kong economist Luo Jiacong told Radio Free Asia that there are more than 200 banks in Hong Kong, 8 of which have become foreign investors. If China, Europe and the United States and other countries expand the scale of sanctions, foreign banks will not abandon US dollar business. If they really want to choose, Foreign banks will choose to leave Hong Kong, which may reduce the number of foreign banks in Hong Kong by more than half.
Luo Jiacong also said that now the U.S. stock market has reached new highs and European stock markets have continued to soar. Only Hong Kong’s market value cannot return to historical highs. If restrictions are further increased, Hong Kong’s status as an international financial center will only be affected.
But looking back now, when the Anti-Foreign Sanctions Law was passed on June 10, it can be said to be anxious to promote. Why was the CCP not afraid of the withdrawal of international capital?
Qin Peng: We see that the CCP forced the “National Security Law” on June 30 last year. The Hong Kong market has not changed much, and the international response has not changed much. Therefore, the CCP believes that the international community cannot do anything about it. Therefore, this time the National People’s Congress of the Communist Party of China passed the Anti-Foreign Sanctions Law in June, and it believed that there was no problem in passing Hong Kong and Macau.
However, they have forgotten that this is equivalent to forcing large international companies and consortia to stand in line. It is not the same, and national security issues are not the same as international financial issues. The former can be said to be deceptive. Of course, enterprises standing in line are equivalent to cutting off the financial avenues of many consortia, either against the United States and sanctioned by the United States, or against the CCP and sanctioned by the CCP. Therefore, running away is the only option.
Of course, the current deterioration of the situation is also related to the Chinese Communist Party’s domestic mess during this period of time, including cleaning up Didi, Ali, Tencent, education and training industries, etc., so that international investors truly feel China’s policy crisis. So, began to escape.
“Vote with Feet” in Financial Markets, CCP Pressured
This change in the use of foot voting in the market is reflected in the financial market and has made the CCP feel the pressure.
Sydney: This time it was still announced on Tuesday that the vote was to be voted, and it was called a stop on Friday. It was also quite abrupt. In your opinion, who might have stopped this legislation?
Qin Peng: Only from the highest level of the Chinese Communist Party. It’s scheduled for one.
Sydney: Will the CCP further introduce a new version of this legislation?
Qin Peng: The CCP, especially the current leaders, has one characteristic, which is very rigid. I suspect that the CCP will find it difficult to improve. Maybe it will evaluate and release a modified version.
Sydney: Free Asia interviewed a pro-China scholar. Tian Feilong, director of the National Hong Kong and Macau Research Association, said that Beijing now has to assess the risk of decoupling the United States and Hong Kong when the law is implemented in Hong Kong, as well as the challenges to Hong Kong’s economic and trade status. The details of the Anti-Foreign Sanctions Law have not yet been announced. If it is to be implemented in Hong Kong, it is necessary to study how companies in Hong Kong make business decisions when facing foreign sanctions and China’s counter-sanctions, as well as whether they can apply for exemptions and other arrangements. Discuss again to ensure that the law will work and the impact on the market will be minimized.
In fact, this series, to put it simply in a word, is that the CCP is afraid, and it has always been unable to pretend to be prestigious.
The Central Bank of the Communist Party of China talks about Evergrande shaking up the financial market and real estate industry
Sydney: In addition, we saw another piece of news. On August 19, the Central Bank of the Communist Party of China and the China Banking and Insurance Regulatory Commission had a rare public interview with the real estate leader Evergrande Group.
China Evergrande has eight major industries including Evergrande Automobile Group, Evergrande Property Group, Evergrande Children’s World Group, Hengteng Network Group, and RV Bao Group.
On that day, the prices of Evergrande-related companies listed in Hong Kong plummeted.
Qin Peng: In China, being interviewed by management often means that you may be in trouble. Otherwise, it may be called a private meeting. From the information released by the media, it can also be seen that the regulatory authorities’ dissatisfaction with Evergrande is not just a debt issue. This is why the market has panic selling after hearing the news of the interview.
Sydney: Let’s take a look at what the media say: “The central bank and the China Banking and Insurance Regulatory Commission pointed out that Evergrande Group, as a leading company in the real estate industry, must earnestly implement the central government’s strategic deployment on the steady and healthy development of the real estate market, and strive to maintain stable operations and be proactive. Resolve debt risks, maintain the real estate market and financial stability; disclose true information on major matters in accordance with laws and regulations, not disseminate and promptly clarify false information.”
Qin Peng: These three short paragraphs show that, first, Evergrande has not implemented the CCP Central Committee’s deployment of the stable and healthy development of real estate, and its development is radical; second, the debt risk is too great, it has affected the real estate industry, and may even trigger The financial crisis has caused a systematic financial trend; thirdly, the failure to disclose information in accordance with laws and regulations involves the spread of false news.
This is a rare public accusation. As a leading company, this evaluation shows that the contradiction between the two parties can no longer be completely reconciled.
Sydney: As China’s largest real estate company, Evergrande Group and its boss Xu Jiayin often appear in the media in high profile. From 10 years ago, when the top leader of the Chinese Communist Party announced the acquisition of the Guangzhou football team for 100 million yuan, to the investment of 100 billion yuan to build cars. .
The debt crisis is exposed to help the government to solve?
However, since the exposure of a document of Evergrande Group to the Guangdong Provincial Government in September last year, Evergrande has been tied up with the negative news of the debt crisis, and since then it has entered an eventful period.
Qin Peng: In this report to the Guangdong Provincial Government, Evergrande stated that as of June 30, 2020, Evergrande had an interest-bearing debt balance of RMB 835.5 billion. Since the plan to reach a backdoor IPO with a number of strategic investors in 2016 has not been completed, the strategic investors must be repaid 130 billion yuan in principal and 13.7 billion yuan in dividends before January 31, 2021. This may lead to constant The cash flow of large real estate is broken. Therefore, I hope the Guangdong Provincial Government will help.
In order to show the seriousness of the matter, the Evergrande report also said that if the cash flow breaks, it will directly affect the employment of up to 3.31 million people in the company and its cooperative enterprises; the 617,000 units of Evergrande’s sold but undelivered commercial houses involve 2.04 million owners. They will face the risk of unfinished projects or failure to repossess their buildings, which will seriously affect social stability.
Sydney: But Evergrande later refuted the rumors that the file screenshots were “fabricated out of thin air and purely slanderous”?
Qin Peng: However, as I said at the time, I’m afraid Evergrande revealed this by itself, putting pressure on the top CCP leaders and forcing them to untie themselves. This time, when the central bank and the China Banking and Insurance Regulatory Commission talked about Evergrande, they said, “Do a good job in the disclosure of real information on major matters in accordance with laws and regulations, and do not disseminate and promptly clarify false information.” There should also be accusations against Evergrande.
Sydney: However, we saw that, later, on November 22 last year, the risk of Hengda’s 100 billion thunderstorms was resolved.
Evergrande Group announced that all the 130 billion yuan investment has been negotiated, of which 125.7 billion yuan of strategic investment will be converted into ordinary shares, and the remaining 4.3 billion yuan will be repurchased by Evergrande.
Quickly exaggerate the reappearance of the debt crisis
So, why did Evergrande’s debt crisis reappeared recently?
Qin Peng: Yes, at that time Evergrande’s 130 billion debt crisis was avoided. However, Evergrande’s high debt is far more than this. In 2019 and 2020, Evergrande’s annual profit has declined year after year, and the total debt has increased to 301 billion US dollars. , Equivalent to RMB 1.9 trillion, of course, many of which are deposits from upstream and downstream companies and customers, but interest-bearing liabilities are 570 billion yuan, that is, the scale of borrowing money from banks and financial institutions is still very large.
Such liabilities will still overwhelm Evergrande in the unsatisfactory environment of the real estate market. So we saw that by the end of July this year, a series of dunning announcements from the Lanzhou Natural Resources Bureau of Gansu Province, “Huaibei Mining” and Langfang Development, etc., also poke open the abscesses under Evergrande’s gorgeous robe-Evergrande The debt crisis has surfaced again.
We have seen that Fitch, S&P, and Moody’s, the world‘s three major rating companies, also downgraded Evergrande’s ratings at the end of July and early August, which also made Evergrande’s debt crisis even worse.
Sydney: In the past two days, “Hengda Real Estate has changed hands.” The chairman changed from Xu Jiayin to Zhao Changlong, and the legal person and general manager changed from Ke Peng to Zhao Changlong. However, personnel changes did not involve changes in the company’s management structure or equity. Xu Jiayin still He is the actual controller of Evergrande Real Estate.
We have seen that despite the heavy debt burden of Evergrande, Xu Jiayin has entered some new industries with a high profile in recent years. For example, in March 2018, Xu Jiayin announced his entry into the high-tech industry, but was asked which one he wanted to do. He said he hadn’t thought about it yet. Three months later, he announced his entry into the automotive industry in a high-profile manner.
In 2019, Xu Jiayin delivered a speech at an automobile supplier conference in Guangzhou, saying: “We need to build cars without technology, experience and experience. It can be said to be poor and white.” A road that has not been taken by any auto company in the history of the world.”
Xu Jiayin said that part of his unusual path was “buy, buy, buy,” including the acquisition of a Swedish supercar manufacturer, a Chinese battery manufacturer, and a British electric drive system developer.
In fact, this model of high debt and rapid expansion is not unique to Evergrande. It is also the path for many Chinese companies to develop. Why is Evergrande now having problems?
Qin Peng: If the stall is too large and the expansion pace is too fast, problems are prone to occur. In particular, China’s real estate market is actually close to saturation and can no longer provide so much money for continued expansion.
The CCP offers “three red lines”
In particular, in August last year, the Chinese Communist Party’s regulatory authorities introduced a new “three red line” real estate financing regulations, which also blocked Evergrande’s way of borrowing. Evergrande has stepped on the “three red lines” and is forbidden to increase interest-bearing liabilities. That is, the money must be paid back to lower the debt ratio.
On July 1 this year, Evergrande announced that a red line has turned green and the net debt ratio has fallen below 100%, but even so, it is as high as 570 billion yuan, and there is no return on investment in automobiles and other industries. Real estate development In the slow case, it is still difficult.
Sydney: Is Evergrande capable of getting out of trouble? If there are systemic risks, will the CCP take action?
Qin Peng: Such a big enterprise is too big to fail, so the CCP will save it. The CCP has actually taken action.
From the beginning of July, Bloomberg revealed that at the end of June, the Financial Stability Development Office of the Communist Party of China had an appointment with Evergrande Xu Jiayin, and the Central Bank of the Communist Party of China also had an appointment in May, asking Evergrande to resolve the debt dilemma as soon as possible to avoid causing financial risks. The report quoted one of the sources as saying that officials asked Xu Jiayin to consider introducing strategic investors to solve the debt problem as soon as possible; another source said that Xu Jiayin is currently discussing plans with local governments and other parties.
On August 12, Bloomberg quoted news that the Chinese Communist Party required the Guangdong Provincial Government, where Evergrande is headquartered, to formulate a plan to help Evergrande resolve debt risks.
However, it now seems that the CCP hopes that Evergrande will sell some industries and shares, introduce strategic investors, and even completely sell some companies such as the automobile industry. However, Xu Jiayin may not be very happy and resisted a lot. Boss Xu was forced to leave the chairman of the board of directors a few days ago. This may also be the reason.
In the public interview with the central bank this time, the content of the conversation was also very rude. It may be that on the one hand Evergrande was not very cooperative before, so it had to be beaten and beaten. On the other hand, if you want to save it, you must give a punishment and public indication. In order to follow the example, to avoid other real estate with the same problem to follow suit.
Evergrande is said to be related to Xi, but Xi is unwilling to engage in the past model of banks and state-owned enterprises that directly resolve debts for him. He may be more willing to adopt the model of national advancement and national retreat to annex some of Evergrande’s high-value assets.
Sydney: Evergrande is now in trouble. It is related to the Chinese Communist Party’s real estate supervision and the introduction of new regulations restricting the debt ratio and short-term debt ratio of real estate companies, which is the “three red lines”. Violating companies are required to limit the annual growth rate of interest-bearing debt. . But the question is, why has the abnormal pattern of excessive expansion and massive borrowing of Chinese real estate companies been allowed for many years?
Qin Peng: This is a unique mode of CCP management. We see that the Fed’s management is very meticulous, perhaps only 0.25 percentage points each time, with nuanced handling. And China is not, a unique phenomenon in China’s political and economic fields in recent decades. “Death as soon as you control it, and chaos as soon as you release it”, and it’s a vicious circle.
This model is determined by the official-based political system that is responsible to the superiors. Officials are effective in implementing higher-level orders, but responding to feedback from the private sector, including enterprises and the market, is very poor, which leads to politics. , Economy, education, culture, etc., in almost all fields. This is also a comprehensive complication caused by the agglomeration and evolution of internal contradictions in China’s political system.
Sydney: Do you think there will be problems with real estate companies?
Qin Peng: Evergrande is not the first, and it will not be the last. The real estate market will also experience certain turbulence.
Production Team of “Qin Peng Live”
Editor in charge: Li Hao #
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