In the Financial/Economic News

[Randy W]

Guo Hui's firm provides cleaning and repair services for the property giant's apartments, but he said the payments stopped in June.

from the SCMP on Facebook 
https://www.facebook.com/scmp/videos/2951597081835617/

 

 

 

[Randy W]

China Steps Up Efforts to Ring-Fence Evergrande, Not Save It
Bloomberg News

October 4, 2021, 5:00 AM GMT+8
Updated on October 4, 2021, 5:42 PM GMT+8

WATCH: Evergrande is sitting on more than $300 billion in liabilities and it’s not just Chinese markets that are unsettled. Sofia Horta e Costa reports.

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The moves underscore that China will do everything it can to ring-fence Evergrande, while showing little interest in a direct bailout of the developer that has roiled global markets for weeks. That doesn’t bode well for bondholders -- both onshore and abroad -- looking for some kind of rescue from the Chinese government.
  
“The first obligation is going to make sure that homeowners who bought those homes take delivery and are made whole,” said Marathon Asset Management Chief Executive Officer Bruce Richards, who started buying Evergrande debt last week. “At the very end of the pecking order are offshore bondholders.”
 
For China, the risk of contagion far outweighs any potential damage from an Evergrande collapse on its own. Though Evergrande is one of the largest developers in China, it accounts for just 4% of sales in the country. A run on property firms in the wake of an Evergrande failure threatens to destabilize an industry that accounts for 29% of China’s economy, according to new research from Harvard University economist Ken Rogoff.

 

[Randy W]

Chinese property developer Fantasia just missed a $206 million repayment deadline, a sign that China's real estate woes extend beyond Evergrande

from Business Insider via Yahoo News 

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Fantasia is worth $415 million, reported Reuters, a drop in the ocean compared to Evergrande's crisis. But its bond default contributes to fears that an imminent major collapse in China's property market could destabilize the whole Chinese economy.

Fantasia, based in Shenzhen, is involved in developing around 127 million square feet of land, and manages a total 47 projects - mostly for mixed residential and commercial use - as of June, according to its 2021 interim report.

It took a senior note bond worth $500 million in 2016 that was due this year, said the company in a Monday exchange filing. But when the deadline arrived, it still had $206 million of the repayment left outstanding, it said.

"The Board and the management of the Company will assess the potential impact on the financial condition and cash position of the Group under the circumstances," read the statement.

On the other hand, Fantasia Chairman Pan Jun said two weeks ago that its "operating performance is good with sufficient working capital and no liquidity issue."

 

 

[Randy W]

The End of a ‘Gilded Age’: China Is Bringing Business to Heel
Executives sit in jail, tech companies are being reined in and the biggest developer is teetering. It’s the beginning of a new era for China’s economy.

Chinese tech companies are reeling from regulation. Nervous creditors are hoping for a bailout for China’s largest developer. Growing numbers of executives are going to jail. An entire industry is shutting down.

For China’s leader, Xi Jinping, it’s all part of the plan.

“These days, the behavior of financial sector executives is more conservative,” he said. “It’s not about looking to what you can get away with anymore, but trying to adhere with the spirit of what Beijing wants.”

from the NY Times

Xi Jinping in Tiananmen Square in Beijing on Thursday. In Mr. Xi’s China, success in business no longer guarantees safety.Credit...Carlos Garcia Rawlins/Reuters

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Chinese tech companies are reeling from regulation. Nervous creditors are hoping for a bailout for China’s largest developer. Growing numbers of executives are going to jail. An entire industry is shutting down.

For China’s leader, Xi Jinping, it’s all part of the plan.

Under Mr. Xi, China is reshaping how business works and limiting executives’ power. Long in coming, but rapid in execution, the policies are driven by a desire for state control and self-reliance as well as concerns about debt, inequality and influence by foreign countries, including the United States.

Emboldened by swelling nationalism and his success with Covid-19, Mr. Xi is remaking China’s business world in his own image. Above all else, that means control. Where once executives had a green light to grow at any cost, officials now want to dictate which industries boom, which ones bust and how it happens. And the changes offer a glimpse of Mr. Xi’s vision for managing the economy, ahead of a political meeting expected to solidify his plans for an unprecedented third term in charge.

The goal is to fix structural problems, like excess debt and inequality, and generate more balanced growth. Taken together, the measures mark the end of a Gilded Age for private business that made China into a manufacturing powerhouse and a nexus of innovation. Economists warn that authoritarian governments have a shaky record with this type of transformation, though they acknowledge that few have brought such resources and planning to the effort.

 . . .

“The very definition of what development means in China is changing,” said Yuen Yuen Ang, a political science professor at the University of Michigan. “In the past decades, the model was straightforward: It was one that prioritized the speed of growth over all other matters.”

“It is clear by now that Mr. Xi wants to end the Gilded Age and move toward a Chinese version of the Progressive Era, with growth that is more equitable and less corrupt,” she added.

Shockwaves have been felt across China’s economy, the world’s second largest. Analysts argue that some measures, such as reducing debt and curbing anticompetitive behavior among internet platforms, have long been needed. But they worry that the new policies could hurt competitiveness and favor the inefficient, monopoly-dominated state sector, which Beijing has long avoided reforming.

“During the anticorruption drive, no one knew who might be targeted next,” Ms. Kassam said. “What it led to was inertia. Officials were too terrified to make decisions in case they were the wrong ones; you’ll see a similar chilling effect on the private sector.”

For many businesses, the guidelines were once clear: Pay lip service to the government, make money and go global if possible, with foreign listings and acquisitions. While China’s billionaires always felt vulnerable — the country’s list of richest individuals is often joked about as a catalog of targets — they also had a cozy relationship with officials that allowed for flouting the rules and influencing policy.

Success is no longer a guarantee of safety. The big-name casualties are piling up, and there is little sign that Mr. Xi and the regulators he has empowered are daunted by the carnage. Since February, investors have erased more than $1 trillion from the market value of China’s largest listed tech firms.

The knock-on effects are also hitting regular Chinese people, with the potential to stir social unrest. Officials have issued directives urging local governments and companies to look out for budding protests related to the troubled property sector. Evergrande’s crisis has triggered anger among unpaid suppliers, home buyers who purchased apartments years in advance and employees, some of whom have demonstrated at its offices.

Beijing is trying to send a warning that no firm is too big to fail. Mr. Xi’s corruption campaign and an ensuing push to curb excess borrowing have already made a big difference, said Dinny McMahon, an analyst for Trivium, an advisory focused on China.

“These days, the behavior of financial sector executives is more conservative,” he said. “It’s not about looking to what you can get away with anymore, but trying to adhere with the spirit of what Beijing wants.”

 

 

Edited October 6, 2021 by Randy W (see edit history)

[Randy W]

Beyond Evergrande, China’s Property Market Faces a $5 Trillion Reckoning
Developers have run up huge debts. Now home sales are down, Beijing is imposing borrowing curbs and buyers are balking at high prices.

from the WSJ

In the process, the developers became much bigger than anything seen in the U.S. The largest U.S. home builder by revenue, D.R. Horton Inc., reported $21.8 billion of assets at the end of June. Evergrande had some $369 billion. Its assets included vast land reserves and 345,000 unsold parking spaces.

For much of the boom, the developers were filling a need. In more recent years, policy makers and economists began to fret that much of the market was driven by speculation.

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As China enters what many economists say is the final stage of one of the largest real-estate booms in history, it is confronting a staggering bill: More than $5 trillion in debt that developers took on when times were good, according to economists at Nomura Holdings Inc. 

That debt is nearly double what it was at the end of 2016 and is more than the entire economic output of Japan, the world’s third-largest economy, last year. 

Global markets are braced for a possible wave of defaults, with warning signs flashing over the debt of about two-fifths of development companies that have borrowed from international bond investors.

Chinese leaders are getting serious about addressing the debt, with a series of moves meant to curb excessive borrowing. But doing so without torpedoing the property market, crippling more developers and derailing the country’s economy is quickly turning into one of the biggest economic challenges Chinese leaders have faced in years, and one that could reverberate globally if mismanaged.

 . . .

Total sales among China’s 100 largest developers were down by 36% in September from a year earlier, according to data from CRIC, a research unit of property services firm e-House (China) Enterprise Holdings Ltd. It showed that the 10 biggest developers, including China Evergrande, Country Garden Holdings Co. and China Vanke Co., saw sales down 44% from a year ago.

 . . .

But many economists, investors and analysts agree that even for healthy ventures, the underlying business model—in which developers use debt to fund a steady churn of new construction despite demographics becoming less favorable for new housing—is likely to change. Some developers might not survive the transition, they say.

Of particular concern is some developers’ practice of relying heavily on “presales,” in which buyers pay in advance for still-uncompleted apartments.

The practice, more common in China than the U.S., means developers are in effect borrowing interest-free from millions of households, making it easier to continue expanding but potentially leaving buyers without finished apartments should the developers fail.

Presales and similar deals were the sector’s biggest funding source this year through August, according to the National Bureau of Statistics of China.

 . . .

As recently as the 1990s, most of China’s city residents lived in drab dwellings provided by state-owned employers. When market reforms started transforming the country and more people moved to cities, China needed a massive new supply of higher-quality apartments. Private developers stepped in.

Over the years, they added millions of new units in modern, well-maintained high-rises. In 2019, new homes made up more than three-quarters of home sales in China, versus less than 12% in the U.S., according to data cited by Chinese property broker KE Holdings Inc. in a listing prospectus last year.

In the process, the developers became much bigger than anything seen in the U.S. The largest U.S. home builder by revenue, D.R. Horton Inc., reported $21.8 billion of assets at the end of June. Evergrande had some $369 billion. Its assets included vast land reserves and 345,000 unsold parking spaces.

For much of the boom, the developers were filling a need. In more recent years, policy makers and economists began to fret that much of the market was driven by speculation.

Chinese households are restricted from investing abroad, and domestic bank deposits offer low returns. Many people are wary of the country’s boom-and-bust stock markets. So some have poured money into housing, in some cases buying three or four units without any intention of living in them or renting them out.

As developers bought more locations to build on, land sales pumped up national growth statistics. Dozens of entrepreneurs who had founded development companies showed up in lists of Chinese billionaires. Ten of the 16 soccer clubs in the Chinese Super League are wholly or partly owned by developers.

 

 

[Randy W]

Just stating the obvious here . . .

China has at least 65 million empty homes — enough to house the population of France. It offers a glimpse into the country's massive housing-market problem.

from the Business Insider

Unfinished buildings and vacant streets in Xiangluo Bay. Yujiapu & Xiangluo Bay, a new central business district under construction in Tianjin, was been expected to be China's Manhattan. Now it's a Ghost city.  Zhang Peng / Contributor / Getty Images

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The best known of China's ghost cities may be Ordos New Town, also known as Kangbashi, in the region of Inner Mongolia.

The city was intended in the early 2000s to eventually house a million people, a number that was later scaled back to 300,000. But as of 2016, a mere 100,000 people lived in it. Kangbashi eventually managed to lure residents after China moved some of its top schools into the city, Nikkei reported earlier this year.

 . . .

"These homes being empty means they are sold out to investors and buyers, but not occupied by either the owners or renter," Xin Sun, a senior lecturer in Chinese and East Asian business at King's College London, told Insider.

On the supply side, Sun said, the government gets big sales revenue from leasing out land to developers. "This gives the government very strong incentive to encourage development instead of limiting it," he said.

Every year, China starts building 15 million new homes — five times as many as the US and Europe combined, The Economist reported in January.

In addition to the government promoting development and driving supply up, there's the matter of China's urbanization rate. Data from the World Bank indicates that 61% of China's population lived in cities as of last year, up from 35.8% just two decades earlier.

Gan said there were flaws in China's urbanization-rate metrics, however, one of which is tied to reclassified areas. When rural areas are reclassified as urban, the people in those areas already have houses. So while they never moved, and won't need a new place to live, they still contribute to the urbanization rate, he said.

"Part of the problem is that China overestimated its urbanization rate — how many people would want to move from rural to urban areas," Gan said.

On the demand side, the general upward trend of house prices has spawned huge demand for second and third properties, Sun said.

"Within two decades, house prices have grown multiple times in many places, including major cities," Sun said. "Most people in China haven't experienced a substantial real-estate bubble burst like what the US experienced in 2008 or Japan in the 1990s."

"This leads to a strong popular belief that real estate is the best way to preserve and generate wealth," Sun said. "And this stimulates the demand for buying additional properties."

Homeownership rates in China are high: More than 90% of households are homeowners, according to a January research paper on homeownership in China from the National Center for Biotechnology Information. More than 20% of homeowners in China own more than one home. The US, for comparison, has a 65% homeownership rate. Real-estate holdings also account for an outsize proportion of household wealth in China: 70% of household assets — far higher than what you'd find in Western economies — are held in real estate.

Demand for units, however — and this is where the mismatch comes into play — has been affected by a series of factors, said Bernard Aw, an economist overseeing Asia Pacific for Coface. Among these factors is the increasing unaffordability of homes, an aging population, and slowing population growth. Aw pointed to China's 2020 census, which recorded the slowest population growth since the 1970s.

"They built an oversupply, and then they sold it," Gan said. "And that's why you see the vacancies."

 

 

Edited October 19, 2021 by Randy W (see edit history)

[Randy W]

Shares in China’s Evergrande plunge as deal collapses
Deal falls through as debt-ridden property developer faces looming bond payment deadline.

from AL Jazeera

Shenzhen-based China Evergrande Group is struggling with debts of more than $300bn [File: Aly Song/Reuters]

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Evergrande said on Wednesday it had scrapped a deal to sell a 50.1 percent stake in Evergrande Property Services Group to Hopson Development Holdings, a Hong Kong firm, because the smaller rival had not met the “prerequisite to make a general offer”.

Both sides appeared to blame each other for the setback, with Hopson saying it did not accept there was “any substance whatsoever” to Evergrande’s termination of the sales agreement, and that it was exploring options to protect its interests.

The deal is the second one to collapse as the developer scrambles to raise cash. Two sources told the Reuters news agency last week the $1.7bn sale of its Hong Kong headquarters had failed amid buyer worries over Evergrande’s dire financial situation.

The latest setback comes as the expiry of a 30-day grace period for Evergrande to pay $83.5m as part of its payments for an offshore bond looms. If it cannot do so it will be considered in default.

Evergrande in a filing on Wednesday said the grace periods for the payment of the interest on its US dollar-denominated bonds that had become due in September and October had not expired. It did not elaborate.

 

 

[Randy W]

This article pretty well sums up the situation,  in my book. Western companies are just finding it increasingly difficult to do business in China, and not just in the tech sector.

I never knew that LinkedIn China was a thing until I heard about its demise - LinkedIn International will still function as before as a way for Chinese personalities to connect with the outside world.

But Tesla has a pretty strong foot in the door, while Apple's policies allow it to "follow the laws of the countries it operates in - even if it disagrees with them".

"The question now is how much regulation, how much compliance - and how much censorship - is too much?"

from BBC News via Yahoo

Will Apple be the last US tech giant left in China?

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The company (Microsoft) said having to comply with the Chinese state had become increasingly challenging - so it pulled the plug.

Apple has its own censorship problems in the country.

The BBC reported last week that two popular religious apps had been removed from Apple's App Store.

It later emerged that Amazon-owned Audible and the Yahoo Finance app had also been taken down.

Apple Censorship, a group that monitors the App Store, says it has seen an increase in apps that have been removed this month.

 

 

Edited October 25, 2021 by Randy W (see edit history)

[Randy W]

On 10/21/2021 at 9:30 PM, Randy W said:

Shares in China’s Evergrande plunge as deal collapses
Deal falls through as debt-ridden property developer faces looming bond payment deadline.

from AL Jazeera

Shenzhen-based China Evergrande Group is struggling with debts of more than $300bn [File: Aly Song/Reuters]

 

 

Evergrande in Chinese is 恒大 or Héng dà. I don't think I had seen that anywhere, until I asked Jiaying.

She says she knows of one Evergrande complex here in Yulin, which is still under construction (I haven't seen it in a couple of years).

China just makes it WAY too easy for developers to show a profit VERY early in the construction cycle - before they've even completed any units.

Edited October 25, 2021 by Randy W (see edit history)

[Randy W]

China Plans to Expand Property Tax
The most expensive cities are likely to be included in a pilot tax scheme, experts say.

"It’s not clear if ordinary homeowners will be taxed. Previous trial measures in Shanghai and Chongqing have targeted the rich and owners of multiple homes"

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The pilot will be a step toward national property taxes. Until now, real estate has been taxed only as part of an experiment in two cities, Shanghai and Chongqing. China’s central government has sought to discourage speculation on houses for years, warning of economic risks as well as skyrocketing prices that put houses in major cities out of reach for many middle-class households.

According to the National Bureau of Statistics, the average price of residential properties in the country hit a record high of 11,030 yuan ($1,728) per square meter at the start of 2021. In the “tier-one” cities of Beijing, Shanghai, Guangzhou, and Shenzhen, China Evergrande Group estimated that prices quadrupled between 2009 and 2019, reaching nearly 54,000 yuan per square meter.

The tax will be limited to a group of pilot cities, and apply to both residential and non-residential properties but not legally-owned rural property or residences, according to the announcement made by the top legislature. Most details of the tax, including rates, will be set later by the State Council, China’s Cabinet, and local governments.

“Cities that will see their property prices increase year-on-year by over 5% this year will possibly get included in this plan,” said Lu Wenxi, chief analyst at Shanghai Centaline Property Agency.

The pilot scheme will last for five years after the State Council releases the measures.

It’s not clear if ordinary homeowners will be taxed. Previous trial measures in Shanghai and Chongqing have targeted the rich and owners of multiple homes. Shanghai collects property taxes from homeowners with second properties at an annual rate of 0.4% and 0.6% of the property price, depending on the size of the property, while Chongqing imposes taxes of 0.5% to 1.2% on villas and luxury apartments.

 

 

Edited October 25, 2021 by Randy W (see edit history)

[Randy W]

Mutual funds in China surge to $3.75tn amid Evergrande crisis
Retail investors seek stability over volatile real estate and wealth products

from NikeiASIA

A billboard in a subway station in Shanghai advertises the strong performance of mutual funds.

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These trends, which have been observed over the past year, illustrate how publicly offered mutual funds have ballooned to 24 trillion yuan ($3.75 trillion) in assets under management as of August, according to data from the Asset Management Association of China.

This represents a 20% growth from the end of last year to a scale nearly three times that of Japan's market. Retail investment has historically been concentrated in stocks, real estate and wealth management products.

This dynamic can be explained in part by a surge in people building their assets amid a graying society.

"An increasing number of people, especially those in the younger generation, are entrusting the management of their retirement funds to professional investors," said a source from Mitsubishi UFJ Trust and Banking.

Competition is heating up within the mutual fund sector. Shanghai's SSE Composite Index has yet to break the record set in October 2007, indicating a strong sense of stagnation.

But authorities are gradually lifting foreign investment caps on mutual funds and other vehicles. BlackRock and other large asset management firms are actively entering the market.

Chinese fund managers are developing as well, and there is an expanded roster of products to choose from. There are now 8,674 mutual funds. Some funds that focus on corporate growth potential have exhibited annual performance in the double digits.

There is strong anticipation money in other investment options will be shifted to mutual funds. For example, wealth management products have been subject to regulatory crackdowns due to the murky nature of those portfolios.

 

 

 

[Randy W]

Chinese authorities have told Evergrande's billionaire founder to use his own money to pay down the company's $300 billion debt, Bloomberg reports

• Beijing has instructed Evergrande's founder to pay the company's debt with personal funds, Bloomberg reported.
• Hui Ka Yan's net worth is about $7.6 billion, according to the Bloomberg Billionaires Index. 
• Evergrande's debt pile is $300 billion.

from Business Insider via Yahoo

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Hui's fortune alone is unlikely to be enough to rescue the debt-laden property developer.

According to the Bloomberg Billionaires Index, Hui's net worth is about $7.6 billion - that's small change compared to Evergrande's $300 billion debt pile as of June.

It's also unclear whether Hui's personal stash is liquid enough for the mission. His wealth is largely derived from his shares in Evergrande and their cash dividends, Bloomberg reported.

 . . .

But local governments in China are keeping tabs on Evergrande's bank accounts to ensure the company's funds are being used to complete housing projects under construction rather than pay creditors, Bloomberg reported.

 

 

[Randy W]

The Beijing Stock Exchange (BSE) — which will officially begin trading Nov. 15 — will be China’s third major stock market. Now, it just needs to find high-tech companies to fill it.

from the Sixth Tone on Facebook 
https://www.facebook.com/sixthtone/posts/3082589572059882

Beijing Launches Promotion Blitz for Soon-to-Open Stock Exchange
The Chinese mainland’s third major stock market is set to open Nov. 15. Now, it just needs to find high-tech companies to fill it.

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 It’s designed to help highly innovative small businesses attract funding without having to look outside China’s borders.

Now, the authorities just need to sell that vision to companies. The Beijing Investment Promotion Service Center hosted a forum touting the benefits of the new stock market in Shanghai on Saturday — the first in a string of events that will include roadshows in Shenzhen and Hangzhou.

 . . .

District officials also spelled out the benefits of setting up a business in Beijing. The capital has made becoming an “international innovation and technology hub” and a “leading city in the digital economy” key strategic goals in its latest development plan.

 

 

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

[Randy W]

After the first day of trading on the new Beijing Stock Exchange began at 9 a.m. this morning, the average share price rose over 60% in one hour. One company’s stock jumped 511% in value.

from the Sixth Tone on Facebook 
https://www.facebook.com/1570821646570023/posts/3089398328045673/?substory_index=0

 

 

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

[Randy W]

China Asks Didi to Delist From U.S. On Security Fears

from Bloomberg News via Yahoo

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The country’s tech watchdog wants management to take the company off the New York Stock Exchange because of concerns about leakage of sensitive data, the people said, asking not to be identified discussing a sensitive matter. The Cyberspace Administration of China, the agency responsible for data security in the country, has directed Didi to work out precise details, subject to government approval, they said.

Proposals under consideration include a straight-up privatization or a share float in Hong Kong followed by a delisting from the U.S., the people added. If the privatization proceeds, the proposal will likely be at least the $14 IPO price since a lower offer so soon after the June initial public offering could prompt lawsuits or shareholder resistance, the people said. If there is a secondary listing in Hong Kong, the IPO price would probably be a discount to the share price in the U.S., $8.11 as of Wednesday’s close.

 . . .

What Bloomberg Intelligence Says

Didi’s potential delisting, as requested by regulators, likely just extends the company’s messy saga since its June IPO, with the situation still mired in uncertainty. Options, ranging from a direct privatization to a share float in Hong Kong, will likely take time in order to navigate existing shareholder concerns and could still fail to resolve the data concerns that prompted the regulators’ watch.

 . . .

Didi sparked the ire of Beijing when it proceeded with its New York stock offering this summer, despite regulatory requests that it ensure the security of its data before the IPO. Chinese regulators quickly launched multiple investigations into the company and have considered a range of unprecedented penalties, Bloomberg News reported in July.

It’s possible that the delisting would be part of a package of punishments for Didi. Beijing’s municipal government has proposed an investment in the company that would give state-run firms effective control, Bloomberg News reported in September. Such an investment could help Didi finance the repurchase of its U.S.-traded shares.

 . . .

Regulators have weighed a delisting for Didi since the summer, after the world’s largest ride-hailing company infuriated officials by ploughing ahead with its U.S. IPO, Bloomberg News has reported. A withdrawal from U.S. bourses could stoke fears of an exodus of Chinese firms as Washington and Beijing quarrel about access to listed firms’ books. On Thursday, a senior Chinese regulatory official said such delistings would be a setback for relations with the U.S., while offering broad support for Hong Kong as an alternative venue.