China Economy: News & Discussion

SimplyIndian

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Sometimes it’s ridiculous to see Indians mocking the Chinese economy
Hmm. Yellow ass syndrome. That's fine.
China is good in doing things which is already done by someone else. Reverse it. No new concept, no Innovation,always steel.

Doing this works for some time, but than truth comes out and it hurts.
 
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Jimih

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Protests against corrupt CPC for mishandling of flood victims funds allocation

Chinese citizen Wei Hui who was flooded in the city, he only received such a small amount of funds for post-disaster reconstruction

Wei Hui was dissatisfied with the victims and went to the government gate to draw a banner and protest

 

rockdog

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These are the best universities in the world for 2022

  • In Asia, mainland China registers its highest ever position in the ranking (16th) and sees a record 10 universities reach the world top 200, while South Korea, Japan, Singapore and Hong Kong all achieve their highest positions under the current methodology.
 

rockdog

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China set to open new stock exchange in Beijing


China has announced plans to set up a third stock exchange to serve small and medium-sized businesses.
President Xi Jinping said the new share market will be in the capital Beijing, during a speech to the International Fair for Trade in Services.
Mainland China currently has two major markets based in the Shanghai financial hub and the southern city of Shenzhen.
The move comes as Chinese companies are under intense pressure at home and in the US.
While President Xi did not elaborate on the plan, the China Securities Regulatory Commission (CSRC) published a statement shortly after his speech that said its leadership was "excited" at the prospect.
"Small and medium-sized enterprises can do great things," the CSRC added.

The regulator said that the registration system for the exchange would be similar to Shanghai's STAR market, which is seen as China's answer to the technology-heavy Nasdaq platform in the US.
The announcement comes as Chinese companies have been under increasingly close scrutiny, by both Beijing and Washington.
In recent months, Chinese authorities have announced a series of measures that have had a major impact on large parts of the country's private sector - from tech giants and tutoring firms to music streaming platforms and TV companies.
Along with a huge swathe of tough new measures imposed on companies Chinese authorities have intensified their oversight of firms with share listings in the US.
Last week, Chinese electric car maker BYD's had to suspend a plan to sell shares in its computer chip making unit, making it the latest share offering to be hit by Beijing's crackdown on businesses.
Earlier this month, the Chinese government signalled that this crackdown would continue as it unveiled a five-year plan outlining tighter regulation of much of its economy.

Meanwhile in America, the Wall Street regulator, the Securities and Exchange Commission (SEC) said it will now require extra information from Chinese companies aiming to sell shares in the US.
 

FalconSlayers

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China set to open new stock exchange in Beijing


China has announced plans to set up a third stock exchange to serve small and medium-sized businesses.
President Xi Jinping said the new share market will be in the capital Beijing, during a speech to the International Fair for Trade in Services.
Mainland China currently has two major markets based in the Shanghai financial hub and the southern city of Shenzhen.
The move comes as Chinese companies are under intense pressure at home and in the US.
While President Xi did not elaborate on the plan, the China Securities Regulatory Commission (CSRC) published a statement shortly after his speech that said its leadership was "excited" at the prospect.
"Small and medium-sized enterprises can do great things," the CSRC added.

The regulator said that the registration system for the exchange would be similar to Shanghai's STAR market, which is seen as China's answer to the technology-heavy Nasdaq platform in the US.
The announcement comes as Chinese companies have been under increasingly close scrutiny, by both Beijing and Washington.
In recent months, Chinese authorities have announced a series of measures that have had a major impact on large parts of the country's private sector - from tech giants and tutoring firms to music streaming platforms and TV companies.
Along with a huge swathe of tough new measures imposed on companies Chinese authorities have intensified their oversight of firms with share listings in the US.
Last week, Chinese electric car maker BYD's had to suspend a plan to sell shares in its computer chip making unit, making it the latest share offering to be hit by Beijing's crackdown on businesses.
Earlier this month, the Chinese government signalled that this crackdown would continue as it unveiled a five-year plan outlining tighter regulation of much of its economy.

Meanwhile in America, the Wall Street regulator, the Securities and Exchange Commission (SEC) said it will now require extra information from Chinese companies aiming to sell shares in the US.
MashaAllah!!!
 

SexyChineseLady

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China Trade Surges to New Records on Strong U.S., EU Demand
Bloomberg News

Exports rose 25.6% in dollar terms from a year earlier to a record $294.3 billion, more than $10 billion above any previous month. Imports grew 33.1% to $236 billion, also the highest level ever, leaving a trade surplus of $58.3 billion for the month, the customs administration said Tuesday.

Record Haul
Value of exports hits new record despite virus resurgence and disruptions
 

rockdog

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China Trade Surges to New Records on Strong U.S., EU Demand
Bloomberg News

Exports rose 25.6% in dollar terms from a year earlier to a record $294.3 billion, more than $10 billion above any previous month. Imports grew 33.1% to $236 billion, also the highest level ever, leaving a trade surplus of $58.3 billion for the month, the customs administration said Tuesday.

Record Haul
Value of exports hits new record despite virus resurgence and disruptions
The RMB to USD raises 10%, but the export is still booming. Which means China is still the only place provides stable supply chain to the world. Manufacturing is always the king.

Around 5 years ago i predicted mainland china plus hong kong and macau might be 6 to 7 times GDP than India; and recent one year exchange rate of RMB to USD raises 10%, I realize my prediction would come true.

The gap between two nations are still getting bigger.
 
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SexyChineseLady

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The RMB to USD raises 10%, but the export is still booming. Which means China is still the only place provides stable supply chain to the world. Manufacturing is always the king.

Around 5 years ago i predicted mainland china plus hong kong and macau might be 6 to 7 times GDP than India; and recent one year exchange rate of RMB to USD raises 10%, I realize my prediction would come true.

The gap between two nations are still getting bigger.
Amazing that China is growing so fast with exports despite the constant attacks from the West on Chinese companies -- Huawei, ZTE, DJI, Hikvision, Xinjiang cotton, etc.
 

Haldilal

लड़ते लड़ते जीना है, लड़ते लड़ते मरना है
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Ya'll Nibbiars China has been the defining force of the last 15-20 years. Its so-called economic miracle that was rooted in indiscriminate borrowing, and investing for an export driven economy drove commodity prices and geopolitics in the last couple of decades. But alas, the export miracle never came and increase in net exports account for only 2% yes that's right! of the total increase in its GDP between 2006 and 2019. But there is another aspect of Chinese dominance that though not missed, has not been appreciated as it deserves. And that is the Chinese investments in other countries.

This has totaled a staggering US$ 2 trillion in the last 15 years, as per data compiled by the American Enterprise Institute and The Heritage Foundation. The investments made in developed nations were mostly in the form. equity investments and totaled $1.2 trillion, where as about $829 trillion were in the form of "construction contracts" which went to the developing world. This is where it gets even more interesting. The top 10 countries to receive this Chinese benevolence in the last 15 years, were ALL ISLAMIC COUNTRIES. These top ten countries received over US$280bn, or 34% of the total "construction contracts" from China. The countries and their $ and % share is given below : -

EOpdxBEXUAEOZue.png


The best part for China is that these construction contracts are mostly executed by Chinese companies, using Chinese equipment that the host country must import, using Chinese workers. So the profits, the salaries etc of these contracts and allied equipment all belongs to China. This is a great deal for the Chinese. They force the host country to borrow money from the Chinese or elsewhere to buy stuff from the Chinese. In essence it is Chinese lenders money being recognised as revenues and profits and salaries of Chinese corporates.

What does the host country get in return? It becomes an indentured slave. And when they cannot pay, the Chinese take over key strategic assets they are building for the host country. This is something else and Sri Lanka for example was forced to hand over the Hambantota port to China when it wasn’t able to repay $1 billion. Kenya may soon similarly lose the Mombasa port. Pakistan who is the biggest recipient of Chinese largess, has to repay its multi-multi billion $ loans for CPEC. by 2037-38. This is an impoverished country that can barely cover enough of itself to save its dignity. How will they repay?. They are already teetering on the edge, what all will they lose to the Chinese?.

Look at what Chinese largesse has cost the ISLAMIC countries in just the last 15 years. The consolidated external debt of these 1o countries has gone up from $366bn in 2004 to US$1.8 trillion by 2019, a rise of 5 times or $1.5 trillion. Note, the total Chinese construction.

EOpdxpNXkAI8B4q.png


The contracts were only of the tune of US$282bn! And also remember I am not even adding the equity investments in these countries. For example if I do, the Chinese interest in Pakistan rises from $41bn to over $60bn. This difference is the direct Chinese ownership of Pakistan. This can explain why the Islamic Ummah is remarkably quiet about the alleged Chinese excesses on Muslims in China. It can also explain why every single policy is being opposed on religious grounds in India. Follow the money, my friends. Always.
 

indiatester

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https://www.theguardian.com/world/2...erty-market-evergrande-300bn-debt-share-slump
China property market rocked as Evergrande struggles to repay $300bn debts
Shares in Hong Kong-listed firm slump 10% and bond trade suspended amid fears for shaky real estate market
A woman walks past an advertisement for a property development by Evergrande in Emerald Bay in Hong Kong.

A woman walks past an advertisement for a property development by Evergrande in Emerald Bay in Hong Kong. Photograph: Tyrone Siu/Reuters

Martin Farrer and agencies
Thu 9 Sep 2021 09.03 BST


Shares in the embattled Chinese property giant Evergrande have slumped again after two credit downgrades in as many days amid concerns that it will default on parts of its massive $300bn debt pile.
Evergrande, which is one of the world’s most indebted companies, has seen its shares tumble 75% this year. They fell by almost 10% on Thursday morning before recovering on reports that the authorities may allow the company to reset its debt terms.

Trading in one of the company’s bonds was suspended by the Shenzhen stock exchange after the price dropped 20%. After resuming trade, Evergrande’s January 2023 bond fell more than 30%, triggering a second trading freeze.
The online market trading platform IG said Evergrande posed “a risk of contagion” after Bloomberg reported that Credit Suisse and Citibank were no longer accepting the bonds of another highly indebted Chinese property developer, Fantasia, as collateral.


There were also reports from China on Wednesday of employees protesting outside the company’s offices about salaries not being paid. Evergrande claims to employ 200,000 people and indirectly generate 3.8 million jobs in China.

The company has run up liabilities totalling more than $300bn, after years of borrowing to fund rapid growth and a string of real estate acquisitions as well as other assets including a Chinese football team.

But the firm has struggled to service its debts and a crackdown on the property sector by Beijing has made it even harder to raise cash, fuelling concerns it will go bankrupt.

The value of new home sales has fallen 20% in China since the peak in the first three months of this year, and the value of land sales are also sharply down. Along with Beijing’s tougher regulation, these factors have made it much harder for Evergrande to dispose of unsold properties even with huge discounts.

Investors questioned how Evergrande was going to dispose of assets in order to repay debts without a clear plan.

“There is a lack of confidence and lots of rumours, the key is that we still don’t see a clear [debt resolution] plan,” a stock exchange trader told Reuters.

On Tuesday, a stock exchange filing showed that Evergrande had outstanding liabilities worth 562m yuan ($87m) to a supplier called Skshu Paint and repaid some of the money in the form of apartments in three unfinished property projects.

Xi Jinping, China’s president, has targeted “unsustainable” economic growth in recent months, along with his drive against the country’s increasingly powerful tech billionaires. The assault intensified on Thursday, after Chinese authorities told gaming firms to curb “incorrect tendencies” such as focusing “only on money” and “only on traffic”, sending the Hong Kong stock market down 2.3%, its biggest one-day percentage drop since July.

But whether the president would allow Evergrande to go bust if it fails to meet key repayment deadlines on 21 September remains unclear.

Many analysts warn such an event could have a serious impact on the world’s number two economy because the firm would go under, leaving hundreds of firms out of pocket.

Evergrande is China’s second biggest property developer and has interests in hundreds of cities, specialising in the vast apartment complexes that have sprung up across China in the past 25 years.

Its debts to all manner of companies throughout China means that any default could trigger a knock-on effect for the country’s real estate sector, which has been pumped up by ultra-cheap money since the global financial crisis in 2008-09. Investors fear that if Evergrande is allowed to go under, indebted rivals such as Fantasia could quickly follow.

Those worries were increased on Wednesday when Fitch cut its rating on Evergrande to CC, reflecting its view that “a default of some kind appears probable”.

“We believe credit risk is high given tight liquidity, declining contracted sales, pressure to address delayed payments to suppliers and contractors, and limited progress on asset disposals,” said a Fitch Ratings statement.

The move came a day after Moody’s slashed its rating, indicating it is “likely in, or very near, default”, while Goldman Sachs has cut the stock from neutral to sell.

Last week, the group said its total liabilities had swelled to 1.97tn yuan ($305bn) and warned of risks of defaults on borrowings.

It issued a profit warning at the end of August in which it admitted that it could default on debt payments. The warning came days after Xu Jiayin, the billionaire founder of Evergrande Group and the third richest person in China, resigned as chairman of its real estate arm.

In the latest indication of the company’s funding challenges, financial information provider REDD reported on Wednesday that the company would suspend interest payments due on loans to two banks on 21 September.

James Laurenceson, director of the Australia-China Relations Institute, said Evergrande could be forced into a fire sale but cautioned that the sheer size of the business meant that the situation might not be as dire as some imagined.

“It’s always important when talking about debts to remember that the company also has assets. When you compare the two, the scale of the risk and the possibility of things spinning out of control are moderated.

“I’d be surprised if Xi allows a full-scale bailout, but you have to see it in the context of a $14tn economy.”
 

RoaringTigerHiddenDragon

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HahaHa...fools they are to buy an apartment for $1.3 million in a Chinese city, especially when there is an abundance (over supply) of apartments. The CCP continues to make fools of these peasants. That is what a commie regime does to you - makes you dumb and low IQ. These poor souls now have to live in unfinished buildings and spit on Xitler's photo every day. This is happening on a vast scale. See this video.
Fake economic growth will only help the richest of the rich and the most powerful. Everyone else gets shafted and that's what is happening here.

 

Covfefe

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CCP will bail them out, the Chinese just loveee Real Estate. There is no way the Govt let this one fail and then its entire real estate market gets crashed - a significant portion of their GDP and the provincial govt earnings come from the sector. Plus, the high ups in the CCP own a lot of these companies and properties.
 

avknight1408

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Evergrande is a crooked company. Chinese media Caixin has exposed them. Even in good years they did not have positive cash flow. $300 billion debt is only official figure. They seem to have hidden debt too.

Caixin - How Evergrande Could Turn Into ‘China’s Lehman Brothers’

For the past two months, hundreds of people have been gathering at the 43-floor Zhuoyue Houhai Center in Shenzhen, where China Evergrande Group’s headquarters occupy 20 floors. They held banners demanding repayment of overdue loans and financial products. Police with riot shields had to be on site to keep things under control.

The demonstrators are construction workers at the property developer’s housing projects, suppliers providing construction materials and investors in the company’s wealth management products (WMPs). From paint suppliers to decoration and construction companies, Evergrande owes more than 800 billion yuan ($124 billion) due within one year, while it has only a 10th of that amount of cash on hand.

As of the end of June, Evergrande had nearly 2 trillion yuan ($309 billion) of debts on its books, plus an unknown amount of off-books debt. The property giant is on the verge of a dramatic debt restructuring or even bankruptcy, many institutions believe.

A bankruptcy would amount to a financial tsunami, or as some analysts put it, “China’s Lehman Brothers.” The venerable American investment bank’s 2008 collapse helped trigger a global financial crisis.

Certainly Evergrande, one of China’s three biggest developers, has a giant footprint in China.

Its liabilities are equivalent to about 2% of China’s GDP. It has more than 200,000 employees, who themselves and many of their families have invested billions of yuan in the company’s WMPs. The company has more than 800 projects under construction, more than half of them halted due to its cash crunch. There are thousands of upstream and downstream companies that rely on Evergrande for business, creating more than 3.8 million jobs every year.

Like many of China’s “too big to fail” conglomerates, Evergrande’s crisis has fueled speculation over whether the government will step in for a rescue. Several state-owned enterprises, including Shenzhen Talents Housing Group Co. Ltd. and Shenzhen Investment Ltd., both controlled by the Shenzhen State-owned Assets Supervision and Administration Commission (SASAC), are in talks with Evergrande on its Shenzhen projects, according to people close to the talks. But so far, no deals have been reached.

In a statement last week, Evergrande denied rumors that it will go bankrupt. While the developer faces unprecedented difficulties, it is fulfilling its responsibilities and is doing everything possible to restore normal operations and protect the legitimate rights and interests of customers, according to a statement on its website.

The company hired financial advisers to explore “all feasible solutions” to ease its cash crunch, warning that there’s no guarantee the company will meet its financial obligations. It has repeatedly signaled that it will sell equity and assets including but not limited to investment properties, hotels and other properties and attract investors to increase the equity of Evergrande and its affiliates.

Growth on borrowed money

Over the years, Evergrande has faced liquidity pressure several times, but every time it dodged the bullet. This time, the crisis of cash flow and trust is unprecedented.

Evergrande shares in Hong Kong plummeted to a 10-year low. Its onshore bonds fell to what investors call defaulted bond level. All three global credit rating companies and one domestic rating company have downgraded Evergrande’s debt.

For many years, Chinese developers were driven by the “three carriages” — high turnover, high gross profit and high leverage. Developers use borrowed money to acquire land, collect presale cash before projects even start, and then borrow more money to invest in new projects.

In 2018, Evergrande reported record profit of 72 billion yuan, more than double the previous year’s net. But behind that, it spent more than 100 billion yuan a year on interest.

Even in good years, the company usually had negative operating cash flow, with not enough cash on hand to cover short-term loans due within a year with and presale revenue not enough to pay suppliers. In addition to borrowing from banks, Evergrande also borrows from executives and employees.

When developers seek funds from banks, lenders often require personal investments from the developers’ executives as a risk-control measure, a former employee at Evergrande’s asset management department told Caixin.

“At times like this, Evergrande would have an internal fund-raising campaign,” the manager said. “Either the executives would pay out of their own pockets, or they would set a goal for each division.”

One crowdfunding product issued to executives was called “Chaoshoubao,” which means “super return treasure.” In 2017, Evergrande tried to obtain project financing from state-owned China Citic Bank in Shenzhen, which required personal investment from Evergrande’s executives. The company then issued Chaoshoubao to employees, promising 25% annual interest and redemption of principal and interest within two years. The minimum investment was 3 million yuan. China Citic Bank eventually agreed to provide 40 billion yuan of acquisition funds to Evergrande.

In 2020, Chen Xuying, former vice president of China Citic Bank and head of the bank’s Shenzhen branch from 2012 to 2018, was sentenced to 12 years in prison for accepting bribes after issuing loans.

A senior executive at Evergrande said he personally invested 1.5 million yuan and mobilized his subordinates to invest 1.5 million yuan into Chaoshoubao. Some employees would even borrow money to invest in the product because the 25% return was much higher than loan rates.

When the Chaoshoubao was due for redemption in 2019, the company asked employees who bought the product to agree to a one-year extension for repayment. Then in 2020, the company asked for another one-year extension. One investor said buyers received an annualized return of 4% to 5% in the last four years, far below the 25% promised return.

When Evergrande’s cash flow crisis was exposed, the company chose to repay principal only to current executives. From late August to early September, the company repaid current executives and employees about 2 billion yuan but still owed 200 million yuan to former employees, including Ren Zeping, former chief economist of Evergrande who joined Soochow Securities Co. in March.

Evergrande’s wealth division also sells WMPs to the public. Most of these WMPs offer a return of 5% to 10%, with a minimum investment of 100,000 yuan, the former employee at Evergrande’s asset management department said. As the return is higher than WMPs typically sold at banks, many of Evergrande’s employees bought them and persuaded their families and friends to invest, an employee said. Usually, a 20 million yuan WMP could be sold out within five days, the employee said.

The company also sells WMPs to construction partners. Evergrande would require construction companies to buy WMPs whenever it needed to pay them, a former employee at Evergrande’s construction division told Caixin.

“If the construction companies are owed 1 million or 2 million yuan, we would ask them to buy 100,000–200,000 yuan of WMPs, or about 10% of their receivables,” the former employee said. Although it was not mandatory for construction companies to buy WMPs, they often would do so for the sake of maintaining a good relationship with Evergrande, the former employee said. In addition, Evergrande property owners were also buyers of the company’s WMPs.

About 40 billion yuan of the WMPs are now due. “It is difficult for Evergrande to make all of the repayments at once at this moment,” said Du Liang, general manager of Evergrande’s wealth division.

Evergrande initially proposed to impose lengthy repayment delays, with investments of 100,000 yuan and above to be repaid in five years. After heated protests by investors, the company tweaked its plan last week, offering three options. Investors can accept cash installments, purchase Evergrande’s properties in any city at a discount, or waive investors’ payables on residential units they have purchased.

Some investors opposed the “property for debt” option, as many projects of Evergrande have been halted and there is a risk of unfinished projects in the future.

“The proposals are insincere,” a petition signed by some Guangdong investors said. “It’s like buying nonperforming assets with a premium.” The petition urged the government to freeze Evergrande’s accounts and assets and demanded cash repayment of all principal and interest.

Some investors chose to accept the payment scheme proposed by Evergrande. They selected Evergrande projects located in hot cities in the hope of making up for losses by resale in the future.

As Evergrande owed large amounts to construction companies, more than 500 of Evergrande’s 800-plus projects across the country are now halted. The company has at least several hundred thousand units that have been presold and not delivered. It needs at least 100 billion yuan to complete construction and deliver the units, Caixin learned.

Whether and how to repay WMP investors or deliver housing is Evergrande’s dilemma.

Debt to construction partners and suppliers

In August, the construction company that was contracted to build Evergrande’s Taicang cultural tourism city in Nantong, Jiangsu province, announced the halt of the project due to bills unpaid by Evergrande. The company, Jiangsu Nantong Sanjian Construction Group Co. Ltd., said it put 500 million yuan of its own funds into the project and Evergrande paid it less than 290 million yuan.

Sanjian has other construction contracts with Evergrande and its subsidiaries. As of September, Evergrande owes the Nantong company about 20 billion yuan.

As of August 2020, Evergrande had 8,441 upstream and downstream companies it was working with. If the flow of Evergrande cash stops, the normal operation of these companies will be disrupted, and some would even face the risk of bankruptcy.

In Ezhou, Hubei province, five of Evergrande’s projects have been halted for more than a month, and it owes contractors about 500 million yuan.

“Housing delivery involves not only hundreds of thousands of families, but also local social stability,” a banker said. The housing authorities in Guangdong province are coordinating with Evergrande and its construction partners, trying to resume construction, the banker said.

Evergrande relies heavily on commercial paper to pay construction partners and suppliers. Among payments it made to Sanjian, only 8% was in cash and the rest in commercial paper.

Initially, the commercial paper borrowings were mostly six-month notes with annualized interest rates of 15%–16%. Now most carry interest rates of more than 20%. Holders of such commercial paper can sell the notes at a discount to raise cash. In 2017–18, the discount rate on Evergrande paper could reach 15%–20%. Since May 2021, the few Evergrande notes that could still be sold have been discounted as much as 55%, according to a person familiar with such transactions.

For small and medium-sized suppliers, holding a large amount of overdue Evergrande notes is a burden too heavy to bear. In recent months, a number of suppliers sued Evergrande for breach of contract but often settled the cases. A lawyer who represented Evergrande in related cases told Caixin that many plaintiffs chose to negotiate with Evergrande while fighting in court.

Evergrande also offered a “property for debt” option to its commercial paper holders. The company said it’s in talks with suppliers and construction contractors to delay payment or offset debt with properties. From July 1 to Aug. 27, Evergrande sold properties to suppliers and contractors to offset a total of 25 billion yuan of debt.

Selling assets, but not land

Meanwhile, Evergrande has been offloading its assets to raise cash. Its biggest assets are its land reserves. As of June 30, it had 778 land reserve projects with a total planned floor area of 214 million square meters and an original value of 456.8 billion yuan. Additionally, it has 146 urban redevelopment projects.



In the past three months, Evergrande has been in talks with China Overseas Land and Investment Ltd., China Vanke Co. Ltd. and China Jinmao Holdings Group Ltd. for possible asset sales. Shenzhen and Guangzhou SASACs have arranged for several state-owned enterprises to conduct due diligence on Evergrande’s urban redevelopment projects, a person close to the matter said. Evergrande has approached every possible buyer in the market, the person said.

However, no deals have been reached. Several real estate developers that have been in contact with Evergrande told Caixin that while some of Evergrande’s projects look good on the surface, there are complex creditors’ rights that make them difficult to dispose of.

Some potential buyers have said they could consider a debt-assumption acquisition, but Evergrande was reluctant to sell at a loss, Caixin learned.

At an emergency staff meeting Sept. 10, the wealth management general manager Du said in a speech that most of Evergrande’s land reserve is not for sale, reflecting the position of his boss, founder and Chairman Xu Jiayin.

“In China, land reserves are the most valuable assets,” Du said. “This is Evergrande’s biggest asset and last resort.

“For example, for a land parcel, Evergrande’s acquisition cost is 1 billion yuan, and the land itself is worth 2 billion yuan, but the buyer may only offer 300 million yuan,” Du said. “If we sold at a loss, we would have no capital to revive.”

For his part, Xu maintained that Evergrande could repay all its debts and recover as long as it turns land into houses and sells them.

But even if Evergrande can quickly sell its houses, the revenue would be far from enough to pay down debt. The chance that Evergrande won’t be able to pay interest due in the third quarter is 99.99%, estimated by a banker whose employer has billions of yuan of exposure to the company.

As of the end of June, Evergrande had total assets of 2.38 trillion yuan and total liabilities of 1.97 trillion yuan. Of the nearly 2 trillion yuan of debt, interest-bearing debt was 571.7 billion yuan, down about 145 billion yuan from the end of 2020. The decrease in interest-bearing debt was mostly achieved by deferred payables to suppliers.

In addition to the 571.7 billion yuan of interest-bearing debt on its books, it’s not a secret that developers like Evergrande have huge off-balance sheet debt. But the amount at Evergrande is not known.

In the early stage of projects, developers need to invest a lot of money, which could significantly increase the debt on the balance sheet. Companies often place these debts off their balance sheet through a variety of means. After the pre-sale of the project, or even after the cash flow of the project turns positive, these debts would be consolidated into the balance sheet in the form of equity transfer, according to a property industry insider.

For example, 40 billion yuan of acquisition funds Evergrande obtained from China Citic Bank were invested in multiple projects. Among them, 10.7 billion yuan was used by Shenzhen Liangyang Industrial Co. Ltd. to acquire Shenzhen Duoji Investment Co. Ltd. As Evergrande doesn’t have an equity relationship with the two companies, this item was not required to be consolidated into Evergrande’s financial statement. Evergrande used leveraged funds to acquire equities in 10 projects, and none of them were included in its financial statement, the prospectus of its Chaoshoubao shows.

Evergrande has sold equity in subsidiaries to strategic investors and promised to buy back the stakes if certain milestones can’t be reached in the future. Such equity sales are actually a form of borrowing, too. In March, Evergrande sold a stake in its online home and car sales platform Fangchebao for HK$16.4 billion ($2.1 billion) in advance of a planned U.S. share sale by the unit. If the online sales unit doesn’t complete an initial public offering on Nasdaq or any other stock exchange within 12 months after the completion of the stake sale, the unit is required to repurchase the shares at a 15% premium.

Evergrande’s hidden debts also include unpaid payments to acquire equities. Dozens of small property companies have sued Evergrande demanding cancellation of their equity sales agreements with the company because Evergrande failed to pay them. They are Evergrande’s partners in local development projects. Evergrande usually paid them 30% down for equities but declined to pay the rest even after the project was completed, according to the lawsuits. A plaintiff’s lawyer told Caixin that Evergrande’s project subsidiaries don’t want to go sour with local partners, but they have no money to pay as sales from the projects have been transferred to the parent company.

A total of 49 of Evergrande’s wholly owned local subsidiaries have been sued since April, according to Tianyancha, a database of publicly available corporate information.

Evergrande also owes land transfer fees to some local governments. Some 20 Evergrande affiliates have not yet made payments to the city government of Lanzhou, the capital of Northwest China’s Gansu province, according to a list of 41 such firms issued in July by the city’s natural resources department.

A potential default by Evergrande could spread to markets outside China as it has huge, high-interest offshore bonds. Some of its offshore bonds carry interest rates as high as 15%, a person close to the Hong Kong capital market said. UBS estimates that $19 billion of Evergrande’s liabilities are made up of outstanding offshore bonds.

Evergrande has been frantically selling properties at discounts this year. In late May, it offered certain homebuyers 30% to 40% off if they paid entirely in cash, company staffers told Caixin.

In the first half, the company reported 356 billion yuan of contracted sales, slightly higher than 349 billion yuan for the same period last year. Average selling prices in the first six months declined 11.2%. Meanwhile, payables increased 14.7% to 951 billion yuan, and sales and marketing expenses increased 30% to 17.8 billion yuan. In response to the market environment, the company increased sales commissions and marketing expenses, the company said.

Compared with its competitors, Evergrande has higher capital and human costs but lower selling prices, an industry participant said. “How can it make money?” the person said.

The developer reported a 29% slide in profit for the first half. Its 10.5 billion yuan of profit mainly reflected an 18.5 billion yuan gain from the sale of some shares and marked-to-market holding in internet unit Henten Networks. It reported a loss in its core property business of 4 billion yuan.

Evergrande’s extremely high debt ratio, high financing cost and repeated delays in payments to suppliers, partners and local government show that its liquidity has always been tight, but on the other hand, the fact that it has survived years under this model indicates that it has always been able to generate money, a veteran investor said.

Now everyone is watching whether it can dodge the bullet once again.
 

avknight1408

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Officially China's government debt is very less. But their local governments have trillions of dollars in hidden debt. Now repayments are due and they are struggling. Some random city which nobody has heard about has $57 billion debt!

WSJ - Bills Come Due for China’s Local Governments

With more than $6 trillion worth of debt, some are finding it increasingly difficult to meet payment deadlines

ZHENJIANG, China—For decades, local governments in China borrowed heavily to build urban infrastructure, helping to fuel the country’s red-hot economic growth.

Now, they are under pressure to pay the bill, adding another financial worry to Chinese policy makers’ list.

Independent economists estimate that China’s municipalities have racked up more than $6 trillion in debt—including debts authorities don’t acknowledge on their books.
Tax revenue and returns on the roads and other infrastructure built with borrowed money aren’t enough to pay down the debts. Land sales, which local governments have relied on, have weakened as the economy slows.

With nearly 3 trillion yuan ($428 billion) in bonds coming due in the next two years, on top of bank loans and hidden debt, local governments need to find ways to refinance.
Economists say officials are leaning on banks to extend old loans, although there is little transparency in those dealings. Smaller Chinese lenders have their own funding problems, limiting their ability to help.

Meanwhile, it has become nearly impossible for local governments to tap riskier lending channels. Beijing’s efforts to rein in overall debt has meant new restrictions on informal lending.

“Previously, local governments could just keep on rolling over debt, but now they can’t do that,” said Allen Feng, a China analyst for consulting firm Rhodium Group in Singapore.

Here in Zhenjiang, a city of 3.2 million people in eastern Jiangsu province, debt owed directly by the city government amounted to 70 billion yuan ($10 billion) at the end of 2018. Adding in debt issued by various municipal funding vehicles, the total was close to 400 billion yuan ($57 billion) at the end of 2017, according to an analysis by Guosheng Securities.

In March 2017, Zhenjiang said it had undertaken $290 billion in construction projects over the previous five years, including work on railroads, water channels and residential communities.

An office tower built in 2013 in the city’s new district, financed by a funding vehicle owned by the Zhenjiang government called Jiangsu Hanrui Investment Co., is still largely empty. Jiangsu Hanrui occupies a few floors, with the rest mostly vacant.

Earlier this year, as authorities grappled with ways to address the debt, the city explored receiving credit from China Development Bank in exchange for giving the policy bank local assets to manage, according to people familiar with the matter.

When asked about the discussions and the debt estimate, a Zhenjiang government spokeswoman said it was “inconsistent with the facts.” China Development Bank didn’t immediately respond to a request for comment.

Local authorities are often eager to keep their financial difficulties under wraps, for fear of making it even more difficult for companies to raise money. Reports of local-government defaults in the Chinese media are rare.


Analysts expect more delayed payments by local governments. A recent analysis of more than 200 Chinese cities by Rhodium Group highlighted 20 with debt levels that were many times their annual revenue. On average, those cities faced interest expenses amounting to nearly half of annual borrowings from banks. In many of the cities, local financing companies had operating and investment cash outflows that exceeded inflows from financing.

Land sales were a way for local governments to fill funding gaps, but compensation for resettling residents has risen alongside property prices, the report said. Local governments have been losing money from land development since 2016, it said.

In recent years, local governments have delayed salary payments for civil servants and returns on various private fund products to investors who thought putting money with the government was a safe bet.

On Friday, a Chinese liquor producer in the southwestern province of Guizhou said it would transfer roughly $8 billion of its shares to a company controlled by a local fiscal bureau, a move that could help support the finances of the province’s debt-laden government.

Earlier this month, a local-government financing firm in Hohhot, Inner Mongolia, failed to pay on time a privately issued bond worth 1 billion yuan. The city became the second ever to default on a bond in China.

A special adviser to China’s central bank, Ma Jun, was unusually forthcoming when he warned about financial contagion from potential government defaults and urged officials to work harder to contain the risks.

“A few public defaults” among the tens of thousands of local-government funding vehicles across China “could result in a chain reaction,” Mr. Ma said, if investors grow worried.

He encouraged cities to merge their distressed funding arms with healthier ones or those owned by provincial authorities, according to state-controlled Securities Times.

Beijing has spent years trying to get cities to deal with their borrowings. In 2015, the finance ministry declared local governments responsible for a portion of local financing companies’ debts and began allowing provinces to swap out some of the debt by issuing cheap, long-term bonds. But local governments continued to guarantee borrowings by financing platforms, which racked up more off-book debt.


Local-government debt climbed to 44 trillion yuan in 2018, reaching roughly 49% of China’s gross domestic product, according to UBS. The bank combined official debt with its estimates of borrowings through informal lending channels.

Chinese Premier Li Keqiang told the national legislature in March that Beijing was encouraging financial institutions to adopt market-oriented ways of dealing with hidden debt to avoid having to halt projects in progress. No overarching plan has emerged.

Despite their mountain of debt, local governments are having to borrow more—albeit in transparent ways—as Beijing relies on them to ramp up infrastructure spending to support a slowing economy. Analysts expect the finance ministry to let governments issue 3 trillion yuan in bonds to fund public projects next year, up from about 2 trillion yuan this year.
 

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