Or should that be no respite in the bust in Chinese building? Evergrande is going out of business:
China Evergrande Group warned that it risks defaulting on borrowings if its all-out effort to raise cash falls short, rattling bond investors in the world’s most indebted developer.
“The group has risks of defaults on borrowings and cases of litigation outside of its normal course of business,” the Shenzhen-based company said in an earnings statement on Tuesday. “Shareholders and potential investors are advised to exercise caution when dealing in the securities of the group.”
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The company said it’s exploring the sale of interests in its listed electric vehicle and property services units, as well as other assets, and seeking to bring in new investors and renew borrowings. Still, sharp discounts to swiftly offload apartments cut into margins, helping push net income down 29% to 10.5 billion yuan ($1.6 billion) in the first half of the year, in line with an earlier profit warning.
Rats are deserting the sinking ship:
A long-time supporter of China Evergrande Group’s Hui Ka Yan cut her stake in the developer for the first time since she started accumulating them four years ago.
Chan Hoi-wan, chief executive officer of Chinese Estates Holdings Ltd. and wife of Hong Kong billionaire Joseph Lau, sold 6.3 million shares at an average of HK$4.48 each on Thursday, according to a disclosure to the Hong Kong stock exchange. The sale, which raised HK$28.3 million ($3.6 million), reduced her holding to 8.96% from 9.01%.
Contagion within the group is killing it stone dead:
The Chinese electric-vehicle startup that vowed in March 2019 to take on Elon Musk and become the world’s biggest maker of EVs within five years seems further away from that goal than ever.
China Evergrande New Energy Vehicle Group Ltd., the Hong Kong-listed arm of struggling property behemoth China Evergrande Group, said on Monday evening it might have to delay car production unless it can secure more capital in the short term.
There is no let-up in the reform process for property, Yuan Talks:
China’s government plans to cap the growth of home rents in cities to rein in runaway housing costs and eyes “notable improvement” in real estate market order within three years, after years of crackdowns failed to make urban housing more affordable.
Home rents in Chinese cities will not be allowed to increase by more than 5 per cent per year and the authority will make efforts to ensure a balanced supply and demand in the rental market, the Ministry of Housing and Urban-Rural Development said on Tuesday.
“New immigrants to our cities and many young people cannot afford to buy houses or rent homes in good locations,” which is disheartening for school leavers and new entrants in the labour market, said Vice-Minister Ni Hong, adding that 70 per cent or urban immigrants and low-income youth are renters.
“Only when the young people have hope does the country have a future. The government places a great deal of priority in solving the housing difficulties faced by new immigrants in big cities,” said Ni.
The country also aims to achieve “notable improvement” in the real estate market order within three years and seeks to effectively curb illegal activities and irregularities in the real estate sector and continuously improve regulating mechanism and information system for the housing market, the ministry said.
“Cheating on workmanship and material in property development, false advertisements in home sales, embezzlement of residential rents and non-transparency in property management charges have been among the most common complaints,” said Ni.
George Soros has declared the crisis:
Xi Jinping, China’s leader, has collided with economic reality. His crackdown on private enterprise has been a significant drag on the economy. The most vulnerable sector is real estate, particularly housing. China has enjoyed an extended property boom over the past two decades, but that is now coming to an end. Evergrande, the largest real estate company, is over-indebted and in danger of default. This could cause a crash.
The underlying cause is that China’s birth rate is much lower than the statistics indicate. The officially reported figure overstates the population by a significant amount. Xi inherited these demographics, but his attempts to change them have made matters worse.
One of the reasons why middle-class families are unwilling to have more than one child is that they want to make sure that their children will have a bright future. As a result, a large tutoring industry has grown up, dominated by Chinese companies backed by US investors. Such for-profit tutoring companies were recently banned from China and this became an important element in the sell-off in New York-listed Chinese companies and shell companies.
…Xi does not understand how markets operate. As a consequence, the sell-off was allowed to go too far. It began to hurt China’s objectives in the world. Recognising this, Chinese financial authorities have gone out of their way to reassure foreign investors and markets have responded with a powerful rally. But that is a deception. Xi regards all Chinese companies as instruments of a one-party state. Investors buying into the rally are facing a rude awakening. That includes not only those investors who are conscious of what they are doing, but also a much larger number of people who have exposure via pension funds and other retirement savings.
…Pension fund managers allocate their assets in ways that are closely aligned with the benchmarks against which their performance is measured. Almost all of them claim that they factor environmental, social and corporate governance (ESG) standards into their investment decisions.
The US Congress should pass a bipartisan bill explicitly requiring that asset managers invest only in companies where actual governance structures are both transparent and aligned with stakeholders. This rule should obviously apply to the performance benchmarks selected by pensions and other retirement portfolios.
Amen to that. No doubt it will happen after the event.
China’s old economy is on the verge of a hard landing. Policymakers are far behind the curve. Stay short iron ore. Get set for a global growth scare, if not shock.