fbpx

Sprinkles from the Left

⏰🚀 Ready, Set, Go: These opinions take 1.77 minutes to read.

“Evergrande — a well-known presence in Hong Kong’s capital markets for years — has always been bad… The unanswered question is why the People’s Republic of China and its often merciless regulators allowed it to go on for so long.

Founder Hui Ka Yan has relied on powerful tycoon friends in the financial center and, over the years, they have short squeezed naysayers [and] helped Hui raise billions of dollars in equity financing

He ticked all the right boxes. He was “woke” — in Communist party terms — even before Xi Jinping decided to wake the country to its old socialist values. A party member for more than 35 years, the 62-year-old Hui was already speaking of “common prosperity” in 2018… Hui was given a much coveted spot at the Tiananmen Square gate tower at the 70th anniversary of the People’s Republic on Oct. 1, 2019, and again, at the Party’s 100th birthday party this July. In that way, he was more enlightened than other Chinese tycoons, such as Jack Ma.

It worked. Authorities from small, lower-tiered cities would be intoxicated by Hui and his very visible political correctness and connections — welcoming his development projects and proposals with open arms. “Everything Evergrande and I have belong to the party, the country and the people,” he said in that much-cited 2018 speech. If it sounded grand and charitable then, it feels ominous now.”

–Shuli Ren, Bloomberg Opinion

“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…

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… 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…

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…

If Congress were to enact these measures, it would give the Securities and Exchange Commission the tools it needs to protect American investors, including those who are unaware of owning Chinese stocks and Chinese shell companies. That would also serve the interests of the US and the wider international community of democracies.”

–George Soros, chair and founder of Soros Fund Management. ($)

Sprinkles from the Right

⏰🚀 Ready, Set, Go: These opinions take 1.72 minutes to read.

“Beijing, if it wanted to, could save Evergrande, but confidence that China’s technocrats and political leadership can avoid a contagion is misplaced. In short, they don’t have sufficient resources. For starters, their economy, weighed down by debt and COVID-19, is not producing enough cash. Before the disease struck in late 2019, China had been incurring almost seven times more debt than it was producing gross domestic product…

Moreover, Chinese leader Xi Jinping has been busy attacking the most productive Chinese companies, causing, at last count, a $3 trillion fall in their market value. His Maoist-inspired “common prosperity” campaign has, understandably, scared away both domestic and foreign investment…

China’s fundamental problem is that there is too much debt in too many places. “This wouldn’t be as much of a problem if Chinese property developers, state-owned enterprises, local governments, and even ordinary households did not all have excessively high debt levels,” Pettis writes on the Carnegie Endowment site…

So China will have to face the music sometime, whether or not it has a “Lehman Moment,” and the U.S. can protect itself only by delinking its economy and markets from China’s as fast as it can. It is unwise to be joined to a country that, one way or another, will go down the tubes.

There are no good scenarios for China. The only good scenario for America is to run from China, fast.”

–Gordon G. Chang, 19FortyFive

“And for his next act, President Xi Jinping will attempt his most daring economic feat to date: pricking China’s property bubble without collapsing the economy.

To get a sense of the danger, consider China Evergrande Group. That company, headquartered in Shenzhen with shares listed in Hong Kong, is one of the country’s largest property developers. It’s sitting on liabilities of some $300 billion, and that “b” isn’t a typo. The company seems not to know how to repay and has brought in external advisers to devise a plan…

Evergrande may be allowed to default on some bonds or bank loans, but Beijing probably has the capacity to avert a total collapse. China’s relatively closed financial system, state-owned banks and weak rule of law allow the government to stage-manage a restructuring to avoid a systemic meltdown. But this relatively benign scenario will still be painful for the economy in ways the Party won’t welcome…

Now multiply this stress across the other property developers likely to run into trouble as Beijing’s housing cool-down continues—and add their suppliers, homeowners whose properties may sag in value, and banks that loaned them money. Talk of a Chinese “Lehman moment”—a financial collapse and recession akin to the failure of Lehman Brothers in 2008—is premature. But the credit correction that Beijing is launching may be harder to manage than the Party’s central planners think.”

–Wall Street Journal Editorial Board