Weekly Watch 20210905–20210913

  1. A Fallen Giant: Evergrande no longer grande.
From Nikkei Asia

What happened: Evergrande, one of the largest Real Estate Developer(Firm), failed its loan lenders these days. Actually, Evergrande’s failure, or bankruptcy could be expected long time ago, as the commercial notes were extremely unpopular among the investors, and lawyers said that all civil suites against Evergrande have been asked to be transferred to Court of Guangzhou, where Evergrande’s headquarter registered, for legal process. So it’s a very old story actually. The latest rumors are that 1) one special group from Beijing authority has been sent to Evergrande to get an idea of what’s happening, and (hopefully) make a decision to solve the problem, and 2) bank regulators have asked lending banks to roll-over the loans to Evergrande to next year with only 1% interest rate — to offer liquidity to Evergrande.

How serious is the problem: The total asset of Evergrande is 2.3 Trillion RMB, around 2% of China’s 2020 GDP(in RMB, China GDP data from Wikipedia). Many people, especially western investors thought Evergrande event a Lehman Moment in China, which might not be the case. But the problem is indeed serious, that many people, including Evergrande’s employees were investors of Evergrande Wealth’s investment products, which basically paid like 8% annually to finance Evergrande’s debt. Also, with 2.3 Trillion asset, aka 2.3 Trillion worth of Unfinished houses and un-developped lands, house buyers might get nothing for the money they have paid.

Why not another Lehman? The reasons for Lehman’s bankruptcy, was more a failure of negotiation among the big banks in U.S. Basically, Paulson failed to ask the CEOs from Wall Street and Barclay to reach a deal to take over Lehman Brothers. While most lenders to Evergrande Chinese institutions, a.k.a, obedient followers to Beijing’s orders, the chief negotiator just needed to order different lenders to take the hit proportionally, or created some vehicle to deal with the asset of Evergrande. Another thing worth mentioning is that the debt of Evergrande is just 1.97 Trillion RMB, though some “shadow debt” may exist.

2.A Breaking Giant: China regulators ask Ant Financials to break up with its Huabei(consumer lending arm) and Jiebei(supply chain lending arm), which made up lion share of Ant’s profit

From Gucheng

What Happened: Some western media has reported that Beijing authority has ordered Ant Financials to share or transfer the ownership of Huabei and Jiebei to separate vehicles, and also transfer the user data to a joint venture of Ant Financials and State owned entities. If true, the major profit for Ant Financial will be taken away, and the firm will be focused only on Ali Pay.

Why It Matters: This can be seen as the latest crackdown from Beijing to the tech giants.

3.Xi’s talk: Xi talked with Biden and Merkel — leaders of U.S and EU

From Financial Times

What Happened: Xi made telephone call with Biden and Merkel — U.S and EU leader accordingly, during just one week. It was rumored that Xi blamed Biden for the worsening China-U.S relationship, though no information about how Biden replied.

What Followed: After the call, Xi’s China applied for CPTPP. It cannot be sure whether Xi had negotiated with Biden about this issue or not.

4.Soho will continue soho.

From NetEase Finance News

What Happened: Blackstone stopped to gain the major share of Soho China, after years of negotiation.

Why It Mattered: Soho’s CEO has long been tagged with a “foreign loving” guy, who simply didn’t want to have asset in China anymore. Actually, many business owners, from big corporation owner to SME runner, tried to move their asset to U.S or U.K(like Richard Li) or anywhere seemed to be a “safe heaven”. Soho is just one case among them. The ceasing of the deal might mean that foreign investors were beginning to re-consider the outlook of China’s development, or at least China’s commercial real estate.



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