A construction site in Taiyuan, north China’s Shanxi province. China’s property developers are plagued by huge inventories. (STR/AFP/Getty Images)
[The Epoch Times, August 13, 2023](Comprehensive report by Epoch Times reporter Lin Yan) Xie Jinhe, chairman of Taiwan’s Caixin Media, said that Evergrande and Country Garden’s debts are the enemy of the country, and they should have been liquidated long ago. However, under the special system of the CCP, these The company should fail but cannot fail, and the consequence is that it will soon hit the financial system.
Evergrande Real Estate Group, a subsidiary of China Evergrande, issued multiple announcements on Thursday night (August 10), stating that Evergrande Real Estate Group has total liabilities of 1.83 trillion yuan and total assets of 1.47 trillion yuan. Evergrande fell into default two years ago, which then triggered a series of real estate flameouts.
By early on the 11th, Chinese domestic networks began to guess who the next real estate company would fail. At that time, more than 100 million people viewed the comments under the label “Evergrande Insolvency”.
Subsequently, the stock of large-scale developer Country Garden plummeted on the 11th, with the largest drop of 14.4% on the day, hitting a new low of HK$0.89. The reason is that it released a document on the Hong Kong Stock Exchange on the 10th, stating that it expects to lose as much as US$7.6 billion in the first six months of this year, which is in huge contrast with the same period last year. At the same time, coupled with the explosion of coupons on two maturing bonds this week, Moody’s downgraded its rating to be inferior to junk bonds.
Country Garden is the last major real estate giant remaining in China to avoid default.
Xie Jinhe said on Facebook that Evergrande and Country Garden have more than 2 trillion yuan in debt.
“Theoretically, these companies should have gone bankrupt and liquidated long ago, but under the special system of the Chinese Communist Party, these companies should fail but cannot, and the banks must bear the burden in the end,” he wrote.
Xie Jinhe predicted that due to the impact of the real estate industry, the non-performing asset ratio of Bank of China will rise rapidly afterwards.
The recently released non-performing loan ratios of China’s four major state-owned banks show that Bank of China is 7.23%, Industrial and Commercial Bank of China 6.14%, Agricultural Bank of China 5.48%, and China Construction Bank 4.36%. Non-performing loan ratios are rising rapidly, while bank and life insurer stock prices are falling.
Xie Jinhe bluntly said that now China’s real estate market has frequent bad news and will become the new normal of China’s economy. Everyone can recall how Taiwan went through those rough and rough years? The crisis in China’s real estate sector will soon hit the financial system.
Li Ka-shing sells a new residential building in Kowloon with a 30% discount
Hong Kong real estate tycoon Li Ka-shing recently offered a 30% discount to sell the new residential project “Qinhai Station II” in Kowloon, Hong Kong, which is considered to have thrown a “shock bomb” in Hong Kong’s housing market.
Li Ka-shing’s actions have always attracted attention, and his “Cheung Kong Assets Group” is the vane of Hong Kong real estate. He is now making headlines for selling new residential projects at prices they were seven years ago.
The market generally believes that the slump in the real estate market in mainland China has spread to Hong Kong, and the Hong Kong real estate market has also begun to experience a cold winter. Li Ka-shing may want to recover the backlog of funds as soon as possible before selling at a discount.
In 2014, when Li Ka-shing made great efforts to sell real estate projects in mainland China, China’s real estate was booming, and the outside world felt that Li Ka-shing sold it too early. It was later discovered that he saw that the real estate industry would flourish and decline, and chose to withdraw from the high point, and he became the real leader.
Xie Jinhe said that this time, Li Ka-shing sold the property at a 30% discount, “it’s like selling all Hong Kong real estate at a 30% discount. This may be the beginning of a long-term decline in Hong Kong’s real estate market”!
Difficult to break China’s real estate dilemma, ordinary people dare not buy on bargain
The dilemma of China’s real estate is that ordinary people have always held a wait-and-see attitude. In July, the highest level of the Communist Party of China abolished the mantra “houses are for living in, not for speculation” which became a turning point.
Late last year, Chinese authorities rolled back a deleveraging campaign that caused dozens of property developers to default on their debt and rolled out measures to boost demand and provide financing to surviving developers. That, combined with China’s post-pandemic reopening and pent-up buying demand, led to a pick-up in home sales in the first few months of 2023, a welcome relief for developers as well as stock and bond investors.
The good times didn’t last long. In April, China’s real estate market began to weaken again. Societe Generale China economist Wei Yao (Wei Yao, transliteration) said that as housing prices fell, more and more people began to realize that there were still big problems in the real estate market.
“Combined with a weaker overall economic recovery, lower expectations for income and employment, people becoming more realistic, and all of these concerns probably flared up in July,” she said.
In late July, the Politburo, the top decision-making body of the Communist Party of China, publicly stated that it was time to adjust real estate policies, and for the first time omitted the long-standing idiom “houses are for living in, not for speculation.” Cities across the country have responded with cash subsidies and tax rebates for home purchases, raising limits on how much homebuyers can borrow from banks and removing restrictions on additional home purchases.
The Politburo statement made things worse for the housing market. Because the public began to expect more home purchase subsidies from local governments, further price cuts by developers, and more favorable mortgage loans from banks.
For two years, China’s real estate market has been in a downward spiral. The more the house price rises, the more you buy it, and the more it falls, the less you buy it. “The more it falls, the less confident people are. The less confident they are, the less likely they are to buy a house,” said Bruce Pang, chief economist for Greater China at Jones Lang LaSalle.
He said homebuyers had little incentive to act until the housing market turned around.
Under such expectations, the rescue measures originally hoped by the real estate industry will not be effective. Instead, it is even more urgent to sell more houses in exchange for cash in order to avoid debt defaults and sustain consumers who are waiting to buy houses. This is also an important reason why Country Garden, the last real estate company to avoid default, exploded.
The CCP chose the wrong path or repeat Japan’s lost decade
China’s economy has serious problems, and what’s more serious is that the problems are still getting worse. The Wall Street Journal published an article at the end of July warning that China may be repeating Japan’s “lost decade”. Japan has chosen to spread the pain of a housing bubble over decades of weak growth rather than take a short-term sharp hit. Because of the fear that short-term shocks may lead to unanticipated creative destruction.
The article said that if the CCP authorities continue to provide loans to troubled developers such as China Evergrande and weaken risks, these real estate companies will become zombie companies and waste economic resources. If these businesses are forced to restructure and go out of business, they will default on their loans, causing losses to lenders in the short term and temporarily dampening economic growth.
Hua Ri mentioned that although the CCP’s mouthpiece media “People’s Daily” published an anonymous commentary article warning of economic risks in 2016, and Chinese economists also conducted a lot of research on Japan, the authorities did not take action, but chose to A more wrong path.
That’s because it’s hard for Chinese authorities to politically tell the Chinese that the homes they paid for during the bubble may never be completed, to shut down well-connected developers, or to withdraw support for sellers. Because these actions may shock the economy, the CCP is worried about the political risks it will bring.
Editor in charge: Li Ling
2023-08-13 05:30:38
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