Newsletter 95 - December 4, 2021
Welcome to the 95th edition of Trade War.
Evergrande has warned of an imminent default and the Guangdong government gets involved. A poll of economists and analysts says China’s property market woes will last well into 2022.
A bank reserve cut to help small firms may be in the works, says premier Li Keqiang. Beijing tells U.S. business it’s time to stand up for China, and cuts off all trade with Lithuania in Taiwan dispute. And economics czar Liu He explains how China will avoid falling into the middle-income trap, in a People’s Daily commentary.
Evergrande: no guarantee funds sufficient
Embattled property developer Evergrande has warned there is “no guarantee” it will have adequate funds to “perform its financial obligations,"reports AFP.
Following the company’s dire words, made through a filing to the Hong Kong stock exchange Friday night, Guangdong authorities "immediately summoned (founder) Xu Jianyin and... agreed to send a working group to Evergrande Real Estate Group to supervise and promote enterprise risk management,” the provincial government said in a statement.
"The risks of Evergrande Group are mainly due to its own poor management and blind expansion," the People’s Bank of China said. "The short-term risks of individual real estate companies will not affect liquidity in the medium and long-term market," the central bank added.
Guangdong province to help Evergrande
The Guangdong government says it will help Evergrande deal with its debt crisis, write the Wall Street Journal’s Quentin Webb and Anniek Bao.
“Chinese authorities on Friday said they would step in to help China Evergrande Group deal with its crisis, after the highly indebted property giant warned it risked defaulting on a large financial obligation and sought help from its provincial government,” write Webb and Bao.
The provincial government will send a team to the company to try to improve the company’s risk management and internal controls so it can continue with normal operations.
Earlier efforts by local governments focused on ensuring apartment construction continued. “Their priority has been to help suppliers and contractors that the developer owes money to, and ensure that home buyers who bought unfinished apartments from Evergrande get the homes they were promised,” the Journal reported.
The property developer separately said it will work with international creditors. Evergrande “plans to actively engage with offshore creditors to formulate a viable restructuring plan of the company’s offshore indebtedness for the benefit of all stakeholders,” the company said.
Evergrande has about $300 billion in debt, including $20 billion in international bonds, as of the end of June. “International credit-rating firms have all slashed the developer’s ratings to around their lowest levels, saying it is highly likely to renege on its debts.”
Property market downturn to last into 2022
China’s property market is likely to keep slowing into 2022 as tight credit conditions continue and a property tax is rolled out, according to a recent Reuters poll.
The real estate downturn is expected to continue into the first half of 2022, with home prices and sales falling as tight credit policies and a looming property tax dampen demand, a Reuters poll showed.
The survey of 14 analysts and economists predicted that home prices would fall 1 percent and property investment drop by 3 percent, in the first half of next year. Property prices for all of this year are expected to have risen by 2.6 percent, down from the 4.9 percent registered in 2020.
Meanwhile, a long awaited property tax, or at a minimum further expansion of city pilot programs, is likely to be launched in 2022.
"The downward trend in home prices has emerged" because of quotas on home loans, weak demand, and worries about a property tax, said Chen Shen, an analyst from Huatai Securities, reported the news service.
"[The property tax] may increase supply and reduce speculative buying, piling downward pressures on home prices," Chen said.
“The expectation for the supply-side is also gloomy, with property investment seen dropping 3.0% in the first six months of 2022, versus a 15% rise in the first half of this year,” reported Reuters.
“Most agree that property will be more affordable over the next two and three years under President Xi Jinping's "common prosperity" campaign and the government slogan "houses (are) for living in, not for speculation".”
Li Keqiang: bank reserve cut to help small firms
Premier Li Keqiang says aid to small companies is coming through a cut to bank reserve requirement ratios, reports Bloomberg News.
The promise was made in a Friday meeting with International Monetary Fund head Kristalina Georgieva.
“China will continue to implement a prudent monetary policy, keep liquidity reasonably ample, make policies based on the needs of market entities, and will cut the reserve requirement ratio at an appropriate time,” Li reportedly told the IMF head. The last reserve ratio cut was in July.
“The authorities will increase support for the real economy, especially for small and medium-sized companies, to ensure it operates in a stable and healthy manner,” Li said, reported Bloomberg.
“The People’s Bank of China signaled an easing bias in the latest monetary policy report last month, while the State Council urged local governments to speed up spending. The comments from Li indicate that the central bank is looking to further increase support, although it’s unclear how much money any decision would actually free up for extra lending or when it would happen,” the financial news service reported.
Beijing to US business: time to speak up
Beijing has urged U.S. business to push Washington towards a ‘rational’ China policy and an end to ‘ideological’ conflicts, reports the Guardian’s Helen Davidson.
In a video meeting with business groups including the American Chamber of Commerce in Shanghai and the U.S.-China Business Council, vice foreign minister Xie Feng urged the U.S. business groups to “speak out,” warning that as bilateral relations worsen, they cannot “make a fortune in silence.”
In his comments, published by China’s foreign ministry, Xie encouraged the business representatives to “speak up and speak out, and push the US government to pursue a rational and pragmatic policy towards China, stop conducting wars in trade, industry and technology, and stop creating … ideological and geopolitical confrontations and conflicts.”
“We hope that our friends in the business community will clearly oppose the politicization of economic and trade issues and the abuse of the concept of national security, push the Biden administration to lift the tariffs imposed on China, stop the suppression and sanctions against Chinese enterprises and provide a level playing field for enterprises of both countries.”
Xie also spoke out against a possible boycott of the February Winter Olympics. “Boycotting the Olympics for political reasons harms the interests of athletes, violates the common ideals and pursuits of the international community, and is unpopular,” Xie said.
China blocks all Lithuania goods over Taiwan
China has blocked all imports from Lithuania, a move to further punish the Baltic state for allowing the opening of a Taiwanese Representative Office in November, reports the Financial Times.
“Vilnius said Beijing had delisted it as a country of origin, which meant goods cannot clear customs, and was rejecting all import applications,” reports the Financial Times.
Gabrielius Landsbergis, Lithuania’s foreign minister, denounced the “unannounced sanctions” and called the move “unprecedented.”
Lithuania’s exports to China were €300 million last year, not even one percent of its total exports.
“Global Times, the Chinese state-run media outlet, said in an article on Friday that Lithuania had been “dancing” with the US and making inappropriate remarks on Taiwan. It said Beijing had no choice but to lower Lithuania’s diplomatic status and that Vilnius must “bear all the consequences” arising from this.”
FT China @ftchinaLithuania complains of trade ‘sanctions’ by China after Taiwan dispute https://t.co/YUb3DoYkcs
Elon Musk, China cheerleader!
Even as he clashes with the Securities Exchange Commission and mocks U.S. president Biden on Twitter, Tesla’s Elon Musk has become a vocal cheerleader for China, report the Wall Street Journal’s Lingling Wei, Rebecca Elliott and Trefor Moss.
Tesla likely now makes over half its vehicles in China, produced in its solely-owned auto venture in Shanghai, and its sales there helped give the company its first full year of profitability in 2020. In order to lure it set up in China, officials not only gave Tesla the right to 100 percent ownership, but also low cost land, cheap loans and tax incentives.
But now things have gotten more complicated. Already facing angry Chinese rivals and dissatisfied customers and officials, Tesla now has gotten caught up in Beijing’s crackdown on big tech.
“China is pressing foreign companies to meet an ever-more-stringent policy on data security,” writes the business paper. “Tesla now must retain inside the country all digital records gathered from local customers, and it must ask authorities for approval before updating certain software on cars in China.”
“Mr. Musk’s response to the pressure has been to become a high-profile cheerleader of China’s ruling Communist Party,” the Journal writes. “The economic prosperity that China has achieved is truly amazing, especially in infrastructure!” Musk tweeted on the 100th anniversary of the Chinese Communist Party’s founding on July 1, 2021.
Musk has even praised the new data rules that could well hinder its ability to develop an autonomous car in China. “At Tesla, we’re glad to see a number of laws and regulations that have been released to strengthen data management,” Musk said in a video speech to a Chinese Internet conference in September.
Risky leap over the middle-income trap
In a lengthy People’s Daily commentary, economic czar Liu He has outlined how China will avoid the “middle-income trap,” reports the South China Morning Post’s Zhou Xin.
The middle-income trap, “a stage of economic development when income levels stagnate, preventing a country from joining the ranks of rich nations,” is considered a “real threat” in China, writes Zhou, citing Liu He’s article.
“Since the end of World War II, there are many countries that have started the industrialization process and even briefly stepped over the threshold of being a high-income country,” Liu He wrote in the commentary. “Yet only very few countries, such as South Korea, Singapore and Israel, have truly leapt over the middle-income trap.”
To succeed in making the leap, China must change its growth model from one “driven by inputs” to one that is “driven by technological innovation,” Liu explained.
“Beijing has now given unprecedented priority to technological innovation to recharge the country’s slowing economic growth. As such, China is placing its hopes for avoiding the middle-income trap on one single bet – making it a challenging goal,” writes Zhou.
In China, wealth, power, and fame are all subject to the arbitrary power of the Chinese Communist Party, writes the Financial Times’ Gideon Rachman, in article looking at the fate of well-known Chinese including Alibaba’s Jack Ma and tennis star Peng Shuai.
"Among the 72 billionaires, 15 were murdered, 17 committed suicide, seven died from accidents, 14 were executed according to the law and 19 died from diseases," Rachman writes, quoting an earlier China Daily piece looking at how vulnerable the very rich are in China.
Apparently riled up by Biden’s upcoming “Summit for Democracy,” China has released a white paper entitled “China: Democracy That Works,” followed by barrage of propaganda touting the country’s many self-declared successes in democracy and criticizing the U.S. version.
Global Times @globaltimesnewsChina released a white paper titled “China: Democracy That Works” at 10 am on Saturday during a press conference of the State Council Information Office. Under the leadership of the CPC, China has achieved a whole-process people’s democracy. https://t.co/3tmXjmyhAZ
“Compared to older generations, young Chinese are broadly becoming more individualistic, more socially liberal, place higher value on self expression and are less deferential to authority, but becoming LESS favorable to democracy,” tweets journalist Eric Fish, citing a report by National University of Singapore.
Researchers at the Singapore University examined two sets of surveys that have been carried out in China for over a decade.
“Insight on Xi's view of Soviet collapse: He warns that economic development is not a panacea for the "Xinjiang problem,” tweets Alexander Boyd, referencing a new trove of documents that put Xi Jinping squarely in charge of the human rights tragedy happening in Xinjiang.
“Lithuania, Latvia, and Estonia were relatively rich, yet they were the first to leave the USSR. Yugoslavia was developed, yet it too disintegrated“
Alexander Boyd @alexludoboydInsight on Xi's view of Soviet collapse: He warns that economic development is not a panacea for the "Xinjiang problem," as Lithuania, Latvia, and Estonia were relatively rich, yet they were the first to leave the USSR. Yougoslavia was developed, yet it too disintegrated https://t.co/xx5cBhIzVk
“I don’t think we talk enough about how Beijing lost 165k people in one year,” tweets Cornell University China labor expert Eli Friedman, referencing an article with chart from Caixin Global.
“The city’s permanent population — people who live there for more than six months — fell by 165,000 from 2017 to 2018, hitting 21.5 million, according to new data from the National Bureau of Statistics,” reports Beijing-based Caixin.
“The capital has implemented strict measures to control its population — including evicting droves of migrant workers,” writes Caixin.
The skies in this state really never disappoint.