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Analysis for Re-Shi and China Evergrand, a fine balanced work by Reuters


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ছবি Photo from Reuters File: A project built by the China Evergrand Group in Taikang, Suzhou, Jiangsu Province, China.

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By Andrew Galbraith

SHANGHAI (Reuters) – Crisis of property giant China Evergrand Group has created a 305 billion problem for President Xi Jinping: how to impose financial discipline without increasing social unrest.

A year before the Chinese president secured an unprecedented third five-year term, his tenure is proving to be the most fruitful period of his tenure.

Evergrand’s orrow-to-build model was enabled by a government that relied on the sale of property for revenue and would have a devastating consequence for a country that was unwilling to bite the bullets of fugitives for fear of falling prices.

Shi, who has spearheaded industrial and social reform this year in the name of “general prosperity,” has made it clear that decades of chaotic growth driven by a steady rise in property prices and debt

But the shared responsibility for the Evergrand crisis – and concerns about the response to a chaotic collapse – complicates the fate of an association with 30 305 billion in debt that is struggling to pay off debtors, including bondholders owed 83 83 million in coupon payments. .reuters.com / world / china / china-evergrande-bondholders-limbo-over-debt-resolution-2021-09-24 which was supposed to take place on Thursday.

“The government has caused some problems at Evergrand,” said Andrew Collier, managing director of Orient Capital Research. By

These sales bring signs of increased sales and speculative overbuilding by developers following renewed government concerns last year about the problems in the property sector following the increase in financing to offset the effects of Covid-1 of.

But it is difficult to put pressure on property prices due to financial dependence on the sector. Local government, which Orient Capital estimates as %% of total government spending, has generated more than 0% of revenue from land sales in 2020, creating a relationship-dependent relationship with developers.

“(The developers) seem to be stuck in a political economy … which effectively leads to a tremendous number of bad decisions because you are now investing based on political turmoil and political winds instead of real business sentiment.” Fraser Howie, author of several books on China’s financial system.

Deep roots

Alfred Wu, an associate professor at the Lee Kuan Yew School of Public Policy in Singapore, said the root of the crisis was the 1994 tax reform, which strengthened the central government’s coffers but left local governments dependent on land financing for revenue.

This led to an increase in property prices and the growth of developers such as Evergrand, which prospered in third- and fourth-tier cities.

“Evergrand is a cash cow for the regional government. If the company goes bankrupt, so will the model of land-financing and regional governments. The central government will not approve it,” he said.

Despite years of warnings from some quarters about the business model used by Evergrande and others, which included taking out huge debts for land and project acquisitions, the company was rarely a rogue operator.

Chairman and majority shareholder Hui Ka Yan took pains to show his close alliance with Beijing and the ruling Communist Party, and he was rewarded.

Evergrand’s 2020 annual report lists Hui’s achievements as “national model worker”, an award-winning poverty fighter and “excellent builder for socialist cause with Chinese characteristics”.

Great awakening

Overwhelmed by stability, Beijing is well aware that the rise of the housing market has created not only huge wealth but also deep inequality.

A portfolio manager based outside China who declined to be named said the 2019 anti-government protests in Hong Kong, partly responsible for the inequality caused by sky-high housing costs, called for Beijing to wake up.

This year, Shi has begun reforming three huge mountains of “residents, education and healthcare” to increase the cost to city dwellers as a way to gain legitimacy as a “leader of the people.”

Protests from disgruntled suppliers, home buyers and investors painted a picture of discontent last week that could default other developers by default.

UBS estimates that there are 10 developers in potentially risky positions who are responsible for the combined contract sales of 1.86 trillion yuan ($ 287.92 billion), almost three times the total of Evergrand.

Nevertheless, many analysts say a larger crisis is unlikely, predicting that the authorities will choose a path to shrink the overall property sector when dealing with personal problems.

“The government knows that if it does not manage Evergrand carefully and allow it to go bankrupt, disgruntled homeowners and shareholders could create social instability, default on loans could lead to financial risk, massive layoffs could exacerbate employment problems, and private companies could panic.” , “Said Tang Renwu, head of the School of Public Administration at Beijing Normal University.

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