China is waiting for the ‘storm’

Evergrande, the Chinese real estate giant with a debt of $305 billion (over €260 billion), is still trying to show positive signs, promising to pay part of the interest on Wednesday. International markets have recovered, for a moment, from the slump of the past few days. But behind the scenes, Beijing has been maneuvering in anticipation of the worst, ordering its regional leaders and state-owned company chiefs to “prepare for a potential storm,” some of them described to the Wall Street Journal.

The Chinese government is not at all happy with the hole in the Evergrande – in fact, it was its actions to try to reduce real estate speculation and contain the sector’s over-indebtedness that led to the company’s collapse – and wants to leave a strong message for the other. Real estate giants. The financial paper said that despite the potential fallout to global finance from the fall of Evergrande, Beijing has little appetite for bailing out the company beyond what is necessary to avoid economic and social impacts on China.

Beijing’s problem is that after the initial panic, many analysts have played down the potential for the fall of Evergrande to affect international markets in the same way as Lehman Brothers, noting that the Chinese conglomerate owes only about 20 billion overseas (about 17 billion euros), the rest of its debt. astronomical local entities.

And the worst thing is that “there are a lot of Evergrands in China – and the Evergrande happens to be one of the biggest of them,” Jim Chanos, a well-known US investor, noted in an interview with the Financial Times. But all construction companies look like this. The entire Chinese real estate market is on stilts.”

Facing a fiasco, the cranes of Evergrande, which filled the Chinese skyline and built entire cities from scratch, are at a standstill, leaving about 1.6 million properties unfinished and many buyers risking running out of savings while still having to pay the equivalent of roughly €100 billion to suppliers. Building materials, the New York Times reported.

No wonder an angry mob of buyers surrounded a government office in Guangzhou, demanding they keep building their homes, Bloomberg said, and videos of similar protests are circulating across China on social media.

“What can I do? I won’t find food soon to eat,” Li Hongjun, one of the workers who must be paid to build unfinished houses in eastern Suzhou, told Reuters. “If I don’t have food to eat, I will have to go.” to the government to eat.”

The problem is not only in this sector. Evergrande, wracked by the Chinese construction boom, eager to benefit from a growing middle class with ever-increasing purchasing power, has gone into more debt to invest in sports stadiums, water parks, electric cars or food products.

In fact, the thirst for loans was such that at the beginning of the year, Evergrande blackmailed its employees, giving them the option of losing their bonuses or lending money to their employer, the New York Times reported. Hundreds agreed to hand over their savings or even took out bank loans, turning their lives upside down.