In the Financial/Economic News

[Randy W]

Pay Now, Own Never: China’s Failing Developers Leave Buyers in Debt
For years, developers sold unbuilt apartments to fund construction. When it goes wrong, buyers can wind up deep in debt, with no house.

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Zhang borrowed money from friends and relatives to pay cash for the 550,000 yuan ($86,000) apartment to take advantage of a discount for cash offers. All told, he borrowed more than 100,000 yuan from relatives and friends and spent all of his savings for retirement. Two and a half years later, Zhang still has the debts, but no new apartment.

By 2018, several nonbank lenders had sued the developer, Zhengzhou Zhongsheng Development Company, alleging that it was behind on payments, according to court filings. Private Chinese developers frequently borrow from such lenders at higher than bank rates.

At first, I still held some hope. Now I have zero hope.
- Zhang Junxiao, home buyer

In late 2019, construction at Qifucheng stopped, according to four buyers and local media. In July 2020, the developer said that construction would be delayed for 350 days because of factors including the pandemic and the city’s air control regulations, according to local newspaper Henan Economic Daily. More than 400 days later, the developer is struggling with debt payments, and work on the apartment complex has not resumed, with no workers seen at the site, buyers say.

 

 

[Randy W]

China Evergrande Defaults on Its Debt, a Ratings Firm Says
Fitch’s announcement spells out a reality already accepted by investors: The company can’t pay its bills and is being restructured under Beijing’s eye.

An Evergrande development in Jiangsu Province, China. Credit...Zhao Qirui/Visual China Group, via Getty Images

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The firm, Fitch Ratings, said in a statement that it had placed the Chinese property developer in its “restricted default” category. The category means that China Evergrande had formally defaulted but had not yet entered into any kind of bankruptcy filing, liquidation or other process that would stop its operations.

The announcement came after the expiration on Monday of a deadline for Evergrande to make payments on two of its bonds, worth more than a combined $82 million. Evergrande said nothing after the deadline expired, but some bondholders said they had not received their payments.

 . . .

The next steps were not immediately clear. Evergrande has already said it would “actively engage” with its foreign creditors to come up with a plan for restructuring — an often long and drawn-out process that can involve stripping a company down and selling off its parts to pay everyone off.

But any move would require the blessing of the Chinese government, which worries that a sudden unwinding of the company could hit the country’s financial system or potentially the many homeowners in China who have already paid for apartments that are yet to be built.

Earlier this week, Evergrande said officials from several state-backed institutions had joined a risk committee that would help the company restructure itself.

While Fitch’s designation has made Evergrande’s default official, the market had long anticipated this moment. For months, Evergrande has struggled to meet deadlines on bond payments. For many, it was only a matter of time before the company ran out of cash to pay its bills.

 

 

 

[Randy W]

Magnachip is listed on the New York Stock Exchange, giving the regulator a legal basis to intervene.

US-China tech war: Washington blocks Chinese fund’s US$1.4 billion takeover of South Korean chip maker
The move by CFIUS is a further blow to China’s efforts to acquire semiconductor technologies and production capabilitiesWise Road Capital has emerged as an active Chinese buyout fund in the chip sector, raising eyebrows as it snapped up assets around the world

from the SCMP 

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The US agency responsible for screening foreign investment deals has blocked a Chinese fund’s US$1.4 billion takeover of a South Korean chip maker, as Washington continues to exert its influence to restrict China’s access to semiconductor technologies.

Chinese buyout fund Wise Road Capital has withdrawn its bid for Magnachip after the deal failed to receive approval from the Committee on Foreign Investment in the United States (CFIUS), according to a statement from the Seoul-based company on Monday.

 . . .

The move by CFIUS is a further blow to China’s efforts to acquire semiconductor technologies and production capabilities. While its production facilities and major markets are in Asia, Magnachip is listed on the New York Stock Exchange, giving the regulator a legal basis to intervene.

 

 

[Randy W]

US sanctions DJI and 7 other Chinese companies over alleged Xinjiang human rights abuses

The US Treasury Department added 8 more Chinese companies to an investment blacklist in for alleged involvement in the surveillance of Muslim minority people in the Xinjiang Uygur autonomous region.

from the SCMP on Facebook
https://www.facebook.com/scmp/videos/259127749539183/

 

The U.S. added more Chinese tech companies and institutions to investment and restricted export blacklists on Thursday, a further escalation of the tech war after placing a Chinese artificial intelligence (AI) company on an investment blacklist last week.

from CGTN on Facebook 
https://www.facebook.com/ChinaGlobalTVNetwork/posts/472058377620973

China condemns U.S. unwarranted suppression of Chinese companies

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The Chinese embassy in Washington said the U.S. had violated free trade rules, and China will take actions to uphold the interests of Chinese companies and research institutions.

"China's development of biotechnology has always been for the well-being of mankind. The relevant claims of the U.S. side are totally groundless," said embassy spokesman Liu Pengyu.

 . . .

On the same day, the U.S. Commerce Department added 34 Chinese companies and institutions to the export restricted entity list.

They included China's Academy of Military Medical Sciences (AMMS) and 11 of its research institutes, which were added to the list over alleged support of or cooperation with China's military.

 

 

from the SCMP 

US sanctions DJI and AI firms including Megvii over alleged Xinjiang human rights abuses

• Chinese AI giant SenseTime was added to blacklist last week, which led it to postpone its Hong Kong IPO
• Other sanctioned firms include AI firms CloudWalk Technology and Yitu Technology, and supercomputer maker Dawning Information Industry

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“Today’s action highlights how private firms in China’s defence and surveillance technology sectors are actively cooperating with the government’s efforts to repress members of ethnic and religious minority groups,” said Brian Nelson, undersecretary of the Treasury for terrorism and financial intelligence.
“Treasury remains committed to ensuring that the US financial system and American investors are not supporting these activities,” he added.

 

Edited January 9, 2023 by Randy W (see edit history)

[Randy W]

China Evergrande shares suspended after order to demolish 39 buldings
More woes for property giant as it is told to tear down the buildings in the lavish Ocean Flower Island development in Hainan province

from The Guardian

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After initially giving no reason for the share halt, Evergrande confirmed late on Monday that it had received an order from authorities at Danzhou city in Hainan on 30 December telling it to demolish 39 under-construction buildings at the Ocean Flower Island project.

It did not disclose the reason for the demolition order but local Chinese media reports said building permits for the lavish development on an artificially created island had been illegally obtained.

The buildings cover 435,000 square metres and have been under construction for eight years, the reports added, citing an official notice to Evergrande’s unit in Hainan.

Regulators in Danzhou city said in November that they would block Evergrande’s plan to repay debts to contractors and other creditors by giving them properties, Caixin reported.

 

 

[Randy W]

In addition to making money, entrepreneurs of big businesses in China have dreams too. The Ocean Flower Island project is the brainchild of the founder of Evergrande Group, Xu Jiayin. It’s said to be the world's largest artificial island. 
Unfortunately, the 39 residential towers on the island have recently been ordered to be demolished. The significance of this matter goes beyond the buildings themselves. 

from China Insight on YouTube

 

[Randy W]

China’s due diligence industry consists of consultancies, law firms, and auditors; sometimes, investors themselves take part. Demand mushroomed a little over a decade ago, rising alongside the proliferation of financial trickery.

from the Sixth Tone on Facebook
https://www.facebook.com/sixthtone/posts/3184661588519346

Hoaxes and Hijinks: China’s Growing Due Diligence Industry
Start-ups sometimes try to fool investors. But the agents they hire have some tricks of their own.

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After a decade working at a fund that handles more than $2.5 billion in assets, an associate didn’t have to think very long when asked about the most absurd scam he had ever come across.

A start-up in China’s southwest, he said, was being probed by an investment firm looking to buy a stake in the young company. To convince the due diligence investigator of their financial health, the start-up rented a building and created their own make-believe bank.

A “clerk” courteously handed over a bank statement to the investigators and watched them leave. The moment they were out the door, the actors packed up. About a month later, this company received hundreds of millions of yuan from the fund. It wasn’t until later, when the company was investigated by the police for fraud, that the investors found out they’d been thoroughly duped.

China’s due diligence industry consists of consultancies, law firms, and auditors; sometimes, investors themselves take part. Demand mushroomed a little over a decade ago, rising alongside the proliferation of financial trickery. In 2011, the aggregate market value of Chinese companies that withdrew from the New York Stock Exchange — often due to fraud — was 3.5 times larger than that of the year’s Chinese IPOs.

 . . .

Take the infamous case of Luckin Coffee, a Chinese Starbucks challenger whose impressive growth figures were found to have been frothed up. Luckin was investigated on site by Meritco and Huisheng Consulting. Reportedly, the actual backer of the short sale of Luckin Coffee was a hedge fund based in Hong Kong called Snow Lake Capital. They entrusted Meritco and Huisheng with the task of investigating Luckin Coffee branches in 38 cities across China.

To tally up the chain’s true income, 92 full-time and 1,418 part-time due diligence agents kept watch over the entrances to these stores to count the people going in and out, obtained surveillance footage, and gained access to employee chat groups. Ultimately, they showed that, in the third and fourth quarters of 2019, the average daily revenue per store had been inflated by 69% and 88%, respectively.

In February 2020, short-seller Muddy Waters published the findings. Two months later, Luckin Coffee confessed that they’d inflated their sales by 2.2 billion yuan, and that most of their sales data since they’d become a publicly listed company had been falsified. That day, the value of their shares plummeted 75.6%. In June that year, Luckin Coffee was delisted from Nasdaq.

 

 

 

 

Edited January 9, 2023 by Randy W (see edit history)

[Randy W]

Tens of thousands could be laid off in the coming months at internet majors Alibaba and Tencent, Reuters reported on Wednesday. Staff at China’s largest tech companies told Sixth Tone that they’re not sure if the reports are accurate, but they’ve been expecting downsizing.

from the Sixth Tone on Facebook 
https://www.facebook.com/sixthtone/posts/3182428052076033

Tech Workers Are Resigned to Layoffs
Repeated rumors of tech layoffs since this year have made those in big tech companies psychologically prepared.

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Tens of thousands could be laid off in the coming months at internet majors Alibaba and Tencent, Reuters reported on Wednesday, in what would be one of the companies’ biggest rounds of layoffs ever.

Half a dozen tech workers at Tencent, Alibaba, and ByteDance told Sixth Tone that they’re not sure if the reports are accurate, but they’ve been expecting downsizing. All requested anonymity, because they are not authorized to talk to the press.

For years, China’s tech giants have been the default option for ambitious college graduates — known as the “big factories” to job seekers. But under pressure from regulators, workers unhappy about overtime, and a weak economy, that could be changing.

Alibaba “could ultimately ax more than 15% of its total workforce, or about 39,000 staff, estimated one of the sources with knowledge of the company’s plans,” Reuters reported.

 

 

Edited January 9, 2023 by Randy W (see edit history)

[Randy W]

China’s yuan under pressure amid ‘unprecedented’ capital outflows following Russian invasion of Ukraine

• Investors have pulled money out of China on a huge scale even as flows to other emerging markets held up, the Institute of International Finance says
• Analysts expect fund outflows in yuan-denominated assets to remain volatile in coming weeks, raising concerns about how authorities will manage the yuan

China has seen large portfolio outflows from stocks and bonds since Russia invaded Ukraine in late February. Photo: EPA-EFE

from the SCMP

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Global investors have withdrawn money out of China on an “unprecedented” scale since Russia invaded Ukraine in late February, according to a report by the Institute of International Finance (IIF), with the yuan likely to face more pressure in coming months.

 . . .

Analysts expect fund outflows in yuan-denominated assets to remain volatile in the coming weeks, raising concerns about how the People’s Bank of China will manage the yuan amid predictions that another rate increase by the US Federal Reserve to tackle inflation could exacerbate outflows from emerging markets and weaken currencies.

The war has renewed fears in Taiwan of increasing risks of military aggression from the Chinese mainland, which views the island as a breakaway province to be reunited, by force if necessary. The sentiment, in addition to the expectations of the US Federal Reserve rate decision, has weighed on the island’s stock market.

 

 

Edited March 29, 2022 by Randy W (see edit history)

[Randy W]

"Hurt feelings" are weaponized to do serious damage to western businesses in China, making for a very unstable business environment.

And they wonder why the "Bamboo Curtain" is being re-constructed.

from Goldthread on Facebook
https://www.facebook.com/goldthread2/videos/738129150684690/

[Randy W]

Domestic ride-hailing app Didi Chuxing announced on its official website on Monday that it has decided to delist from the New York Stock Exchange, a decision taken at a temporary shareholders' meeting.
The enterprise will officially apply to delist on June 2 and the decision will come into effect 10 days later.

from China Pictorial on Facebook
 https://www.facebook.com/ChinaPic/posts/pfbid022UuHMk9aKwRhKJW54PTVf8Sr7DZzJpGZqe9pxAuYFpWBSLXRiP9259cw1SwrcEKGl

[Randy W]

Buyers of housing units in unfinished projects across China are refusing to make mortgage payments, part of a growing backlash against the country’s beleaguered and behind-schedule property developers. Just don’t call it a “strike.”

Related read: http://ow.ly/cqbc50JWrKp

from the Sixth Tone on Facebook
https://www.facebook.com/sixthtone/photos/a.1604152706570250/3275838226068348

China has an entirely different (maybe non-existent) definition of "closing" on a property. We paid for, and were given the keys and moved into our apartment - an apartment we didn't close on until 18 months later. The initial price was paid in RMB per square meter x an estimated floor space. The floor space "sold" wasn't defined until the time of settlement to include our portion of the public areas. 

Homebuyers in Multiple Cities Go on Mortgage Strike Over Delayed Projects
Snowballing protest movement goes viral online, adding another twist to China’s real estate catastrophe and threatening as much as $83 billion of mortgages.

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The purchasers are on the hook to pay for housing units that haven’t been completed, and in some cases construction hasn’t even started. After putting up cash deposits and down payments for units that are yet to be built, buyers obtain mortgages and start making payments even before taking delivery or moving into their new homes.

 . . .

Potential defaults by homebuyers will also squeeze Chinese banks that are already grappling with challenges from liquidity stress among developers. Nonperforming loans triggered by the wave of mortgage payment snubs could reach as much as 561 billion yuan ($83 billion), about 1.4% of outstanding mortgage balances, according to Griffin Chan, an analyst at Citigroup.

 

 

Edited July 26, 2022 by Randy W (see edit history)

[Randy W]

China will launch a real estate fund worth up to 300 billion yuan to help restore the country’s property sector. The fund will be used to purchase unfinished home projects and complete their construction.

Related read: http://ow.ly/Xw6P50K48ZF

from the Sixth Tone on Facebook
https://www.facebook.com/sixthtone/photos/a.1604152706570250/3284453868540117

China plans real estate fund worth up to $44 billion for distressed sector, source says

Reuters

The Evergrande Center of China Evergrande Group is seen amid other buildings in Shanghai, China, September 24, 2021. REUTERS/Aly Song
 

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China will launch a real estate fund to help property developers resolve a crippling debt crisis, aiming for a warchest of up to 300 billion yuan ($44 billion) in a bid to restore confidence in the industry, according to a state bank official with direct knowledge of the matter.

The move would mark the first major step by the state to rescue the beleaguered property sector since the debt troubles became public last year.

The size of the fund would initially be set at 80 billion yuan through support from the central bank, the People's Bank of China (PBOC), the person, who declined to be identified due to the sensitivity of the matter, told Reuters.

He said state-owned China Construction Bank (601939.SS), will contribute 50 billion yuan into the 80 billion yuan fund, but the money will come from PBOC's relending facility.

 . . .

"We don't know details of the fund yet. If just 80 billion it's not enough to solve the problem," said Larry Hu, chief China economist at Macquarie. "I believe the fund would be part of the bigger package to solve the current debt and mortgage crisis, because it alone would not solve all the problems ... we need a real estate recovery."

 . . .

The source said the fund will be used to bankroll the purchases of unfinished home projects and complete their construction, and then rent them to individuals as part of the government's drive to boost rental housing.

Such a move would underline the importance the central government attaches to providing more affordable homes for young people at a time when some local governments have been reluctant to build rental housing because land sales are a major source of income.

 

 

Edited July 26, 2022 by Randy W (see edit history)

[Randy W]

They were already on the HK market as 9988.HK, so I'm not entirely sure what this means.

Alibaba, the Chinese online shopping giant, said it would seek a primary listing in Hong Kong. The move will allow more people in China to invest in the company, and give it a buffer in case it is forced to delist in the U.S. over regulatory concerns.

from the NY Times on Facebook 
https://www.facebook.com/5281959998/posts/pfbid0bd2rPKidCE6aBw9qz74J2jcDXaauL5UY84CWvCvN3das9fncV8qTaBaEtEVe2WfYl/

For Investors and a Buffer, Alibaba Seeks a Hong Kong Primary Listing
The Chinese e-commerce giant’s application could give it better access to Chinese capital and a safety net against U.S. regulations.

Alibaba’s move shows the one-time love affair between Chinese tech firms and Wall Street is drawing to a close.Credit...Andrew Kelly/Reuters

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At the same time, United States regulators have been working to enforce Trump-era rules that require better auditing disclosures. China’s government has insisted that much of the information, in particular sensitive data collected by internet firms, cannot be shared abroad. Although discussions between American and Chinese regulators are ongoing, the disagreements could result in the delisting of hundreds of Chinese companies.

For Alibaba, the new Hong Kong listing arrangement offers the company a safety net against such risks. It also gives the company a boost by making it more accessible to millions of Chinese traders, who have thus far had only limited ability to buy shares in a company they shop on everyday. Alibaba’s shares rose more than 5 percent in Tuesday morning trading in Hong Kong on the listing news.

Although Alibaba was already trading in Hong Kong, the new listing process will help it take advantage of a program that connects the Hong Kong bourse to those in China. Alibaba said in a filing that it expected to complete the process by the end of the year.

 

 

[Randy W]

The possibility that even accounts in the formal banking system might be scams has shaken public faith in the country’s banking system. At the policy level, the incident has cast a pall over a cornerstone of China’s “inclusive finance” campaign.

from the Sixth Tone on Facebook
https://www.facebook.com/sixthtone/posts/pfbid02yqAfhyknvAo4ucka8XgJPfUz2kXkHq9gcRc3f1PXzu5jHRcsC334kE23K1v226oTl

How Henan Bank Scammers Weaponized the Language of Inclusive Finance
Village and township banks were cornerstone of China’s “inclusive finance” campaign. As the Henan crisis shows, some exploited that status for their own gain.

A farmer counts the money he earned from selling crops in Loudi, Hunan province, 2014. Nai Jihui/VCG

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On April 18, five village and township banks in the central provinces of Henan and Anhui did the unthinkable: Claiming “system maintenance,” they abruptly blocked depositors from transferring or withdrawing their money from their accounts.

Overnight, tens of billions of yuan were effectively frozen; some 400,000 account holders in provinces and cities across the country were affected. One entrepreneur lost as much as 40 million yuan. A single mother’s life savings disappeared. Medical bills became unpayable. Those who gathered in Henan to protest saw their local health codes mysteriously turn “red” — indicating a positive COVID-19 test or close contact with a COVID-19 patient — preventing them from traveling or entering the bank premises to withdraw their money in person.

The scandal soon took on national proportions, and not just because of the abuse of the health code system. This wasn’t a fly-by-night operation: The five banks were fully accredited and had marketed fixed deposit products to consumers all over the country via established and trusted fintech platforms like JD.com’s JD Digits and Baidu’s Du Xiaoman Financial.

 . . .

At the policy level, the incident has cast a pall over a cornerstone of China’s “inclusive finance” campaign. Village and township banks first emerged as a distinct class of banking institution in China in 2006. At the time, the country’s large, brand-name banks were generally only willing to lend to state-owned enterprises, firms contracted to build government infrastructure, or companies that could show the kind of rapid growth needed to keep up with banks’ own high interest rates. One of my research participants told me that, as late as 2005, a private chemical plant he worked for with an annual income of 700 million yuan (then about $85 million) struggled to obtain bank loans at reasonable interest rates.

Village and township banks were meant to help address these gaps. Based in rural areas, they offered basic services to residents of China’s vast and largely unbanked countryside. After a short, three-year pilot period, the scheme was fast-tracked. Over 200 village and township banks were established in 2010 alone; by late 2021, there were 1,651 registered village and township banks nationwide, accounting for 36% of all Chinese banking institutions.

In economically developed coastal provinces like Zhejiang, village and township bank performances were relatively strong, but the majority of the banks, especially those in less-developed parts of central or western China, struggled. Residents of these regions have significantly lower incomes than on the coast and there are fewer rural enterprises with which to do business. Unable to compete with the brand recognition of more established commercial banks, village and township banks generally attracted clients rejected by other institutions.

In the face of these difficulties, much of the foreign and state-owned capital that had initially backed village and township banks faded away, leaving private capital dominant in an increasingly messy, competitive market.

 . . .

That village and township banks had been involved in the industry and were exposed to the risks was not a secret. In early 2021, banks were banned from offering long-term fixed deposit products on third-party financial platforms under a new regulatory policy. But at least some institutions found ways to skirt the new rules. Several of the banks implicated in the recent scandal launched self-developed apps targeting online “savers.”

To reassure clients, many village and township banks used misleading language to imply their services were government-backed or approved. High-risk loans were reframed as “inclusive finance”; high-interest financial products were packaged as ordinary and safe “deposits” that were securely insured. This public-facing language, which promised legitimacy and credibility, covered for the banks’ “hidden script”: a reckless pursuit of risky profits. It also lowered people’s natural skepticism of tech-related scams. In the Henan case, in which app users’ money was supposedly saved through a bank app designed to look official, even bank employees failed to realize that the money was being redirected.

As recently as a few months ago, village and township banks were hailed as innovators in the field of inclusive finance. That praise has dried up during the Henan crisis, but the risks remain. This isn’t China’s first case of bank-related malfeasance. Now that the alarm has sounded, regulators must seriously examine and address the deep-seated problems plaguing the country’s financial institutions. Otherwise, depositors will keep falling for the same old tricks.

 

 

Edited July 30, 2022 by Randy W (see edit history)