July 6, 2022

Xi Jinping weighs in on Evergrande’s future as he targets a third term

Evergrande Real Estate Group Updates

Ever since taking office for the third time in a row, Xi Jinping has plunged Evergrande into bankruptcy, one of his president’s biggest economic gambles.

The decline of heavily indebted Chinese developer It will have severe consequences for hundreds of thousands of property buyers and retail investors, as well as financial stability and economic growth in the world’s second largest economy.

Nonetheless, Xi’s management offered no assurances that it would intervene to stabilize the situation, as it has recently done with two other large joint ventures.

“Senior officials are very concerned about Evergrande,” a government adviser said, adding that China’s debt-to-GDP ratio has risen from 250 to 290 percent in two years.

“But it’s only the tip of the iceberg,” he added. “If something dramatic happens to Evergrande, the risk premium for other developers’ debt will be very high, which will create another drag on the sector.”

Evergrand said Chinese markets were relatively stable on Wednesday after a sharp fall in Hong Kong earlier this week because of bond payments at sea on Thursday. But the private sector developer, founded and led by the millionaire Hui Ka Yan, Did not offer any such commitment as the bond payment due on Thursday.

Beijing has overseen a number of state-led restructuring of debt-ridden groups in recent weeks. Huarong, State-owned property manager, and HNA, an aviation, logistics and tourism consortium. Evergreen stands alone because of its direct impact on the lives of millions of people across the country.

In addition to estimating that Evrande owes money to banks, securities and suppliers, the group has provided high-yield wealth management products worth more than $ 6 billion to the estimated 80,000 retail investors who demonstrated at its headquarters last week. Southern City Shenzhen. Home buyers have already paid for the estimated 1.6m plots offered for Evergrande.

Evergrande owes $ 300 billion to banks, securities and suppliers via Get AFP Getty Images

“It will be different because of the extra pressure coming from ordinary citizens,” says David Yu, a financial expert at NYU Shanghai.

The group, through sales, is the second largest developer in the real estate industry, accounting for more than a quarter of Chinese economic output. But just as Xi’s management is allowing such an important economic machine to fail, it is also concerned about the most costly precedent it could set by arranging state – led bailouts.

“Many developers are under stress due to policy austerity,” said one person familiar with the panel’s discussion with Chinese financial regulators.

“If the government offered to help Evergrande, all the other major developers would make similar demands. There is no way the government can save them all.

If Xi and his economic group decide that the government should intervene in Evergrande to prevent a major market and economic downturn, an important political challenge will be how to save the group without saving its corporate leader, Hui.

Shi A introduced one last month Domestic Policy Agenda It will focus on “public prosperity” and be the focal point for his unprecedented third term as leader of the Chinese Communist Party, beginning in late 2022. Recovering Hui, China’s fifth richest man, still does not fit Xi’s view of an equal society.

Hui controls more than 70 percent of Evergrande. The Hurun Report His net worth at the end of 2020 is estimated at $ 35 billion. Huin’s net worth will be a big hit after the group’s share price has fallen 86 percent over the past 12 months, and he recently received billions of dollars in dividends over the years.

Larry Hu, Macquarie’s chief Chinese economist, predicted that “total bailout is not possible.” “Shareholders and lenders can take a huge toll, but the government will ensure that pre-sold apartments are delivered to homebuyers.

The government adviser said Beijing’s approach to HNA, which has more than $ 75 billion in debt, provides a viable model for how to deal with Evergrande.

HNA’s chair was sidelined by a government appointment, after which he restructured the consortium into four separate factions and found a state-owned White Knight investor for its best asset Hainan Airlines.

“The company will survive, but they will survive Push the administration out, “Said the consultant.” That’s what happened at HNA. This confirmed the company, its share prices and bond prices. Authorities have high hopes for this approach.