China makes preparations for Evergrande’s demise

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Beijing, reluctant to bail out the country’s most indebted property developer, is asking local authorities across the country to prepare for a ‘potential storm’.

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Singapore-Chinese officials are asking local governments to prepare for a possible collapse of China Evergrande Group, according to officials familiar with discussions, to bail out the debt-ridden property developer for any economic and social fallout of the company. indicating reluctance. Travels

Officials characterized the actions being ordered as “prepared for a potential storm”, saying local-level government agencies and state-owned enterprises have been instructed to act only at the last minute when Evergrande failed in his management. matters in an orderly manner.

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He said local governments are tasked with preventing unrest and mitigating the ripple’s impact on home buyers and the broader economy, for example by limiting job losses – scenarios that have increased in likelihood as Evergrande’s situation worsens. has occurred.

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Evergrande faces a series of bond payments in the coming weeks, including a closely watched deadline Thursday for interest Payment on an offshore bond.

Local governments have been ordered to assemble groups of accountants and legal experts to examine the finances surrounding Evergrande’s operations in their respective regions, from local state-owned and private property developers to local real estate projects. Enforcement teams to keep tabs on public anger and so-called “mass incidents” are, according to the people, a euphemism for protest.

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A spokesman for Evergrande and the Information Office of China’s cabinet, the State Council, did not immediately respond to requests for comment. Last week, Evergrande said it had hired financial advisors, and reiterated that default was a risk. It warned of tremendous pressure on its cash flow and liquidity, but said it was “strengthening the implementation of measures to mitigate the liquidity crisis,” and said the advisory is working to reach “an optimal solution for all stakeholders”. Will find out ways.

Evergrande is a 25 year old developer based in the southern metropolis of Shenzhen. According to its most recent annual report, in each province of mainland China—about 800 are in progress and spread over 200 cities. Its deepening financial problems have rattled investors, employees, suppliers and home buyers and started spreading to other parts of the Chinese economy.

The company said work on some of its real estate projects was suspended following delays in payments to suppliers and contractors. Some unpaid contractors and homeowners have protested in Evergrande’s offices.

China’s top financial regulator, the Financial Stability and Development Committee, earlier this month asked provincial governments to set up working groups to monitor social and economic instability around Evergrande, some said. The Evergrande situation comes ahead of a closely watched leadership meeting next year.

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Policymakers are also looking at gradually easing some property restrictions in smaller Chinese cities, such as easing second home ownership, according to one of the people. This person said they may also moderate some of the stringent deleveraging measures on property developers, which helped push Evergrande into huge debt in recent months. Still, any such moderation of policies would be confined to smaller towns, and would not replace a larger nationwide campaign to rein in the property sector, this person said.

Given the importance of the property sector to the country’s economy, Beijing will need to stop “a rapid and sharp housing decline,” Morgan Stanley told clients this week. Possible easing measures, the investment bank said, include boosting fiscal spending, further reducing the amount in reserves that banks must keep and making it easier to obtain mortgage loans.

According to official figures, real estate directly accounts for 7.3% of national GDP, although analysts say that real estate and real-estate-related industries collectively drive about one-third of economic output.

China has struggled for years to fix its housing policies. Prices have risen steadily since the real estate market was liberalized more than two decades ago. In recent years, prices had fallen out of reach for many households, rising corporate and household debt levels and concerns about a weakening bubble.

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In recent months, stabilizing the market has become a priority for leader Xi Jinping, with officials repeating the mantra: “Home is for staying, not for speculation.”

The latest buying frenzy began in early 2020, as the government turned to property investment to help offset a pandemic-induced blow to exports and domestic spending. By the end of summer last year, officials fearing the housing market had overheated, introduced a set of policies to cool the sector—and, in particular, to rein in property developers’ heavy borrowing.

Most prominent of last year’s measures was a “three red lines” policy that requires developers to bring down debt levels below certain thresholds before being able to borrow more money from financial institutions.

To comply, Evergrande has scrambled to offload some of its shares in non-proprietary assets, including parts of its electric-vehicle business, the market value of which has raised concerns about the parent’s financial health. had exceeded $80 billion this year before falling between company. Earlier this summer, Evergrande also sold a stake in its Internet business.

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Now, with market forces likely to brace for Evergrande’s disorderly collapse, executives are likely to draw on their experience managing similar shocks, most recently from China Huarong Asset Management Co., the largest non-performing loan company. Sugar Managers and other Bad Debts. Earlier this year, a Chinese court ruled Chinese conglomerate HNA Group Co Ltd to initiate bankruptcy proceedings.

In Tuesday’s memo to employees for China’s Mid-Autumn Festival, Evergrande’s founder and president, Hui Ka Yan, acknowledged the company’s unprecedented difficulties, but vowed to move through the pain.

“I strongly believe that Evergrande’s spirit of never giving up, and being strong when the going gets tough, is the source of our strength in overcoming all difficulties!” Mr Hui, 62, wrote.

Fearing a housing bust that could trigger social unrest, a district-level government in the southwestern province of Guizhou asked officials working on the Evergrande projects, according to a copy of an official notice seen by The Wall Street Journal. Urged migrant workers to ensure their wages.

The notice, which was sent to a group of local officials tasked with dealing with potential Evergrande repercussions, called on cadres to “give great importance to the seriousness of Evergrande’s problems”. Local authorities “should have the courage to act, cooperate closely and do everything possible to resolve Evergrande’s debt crisis,” it said.

Guizhou’s provincial government did not respond for comment.


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