Economic Problems in China and Hong Kong

You might have heard that "China Evergrande has been ordered to liquidate. The real estate giant owes over $300 billion" ABC News reports:

    A Hong Kong court ordered China Evergrande, the world’s most heavily indebted real estate developer, to undergo liquidation following a failed effort to restructure $300 billion owed to banks and bondholders that fueled fears about China’s rising debt burden.

    ... [The judge] said it was appropriate for the court to order Evergrande to wind up its business given a “lack of progress on the part of the company putting forward a viable restructuring proposal” as well as Evergrande’s insolvency.

    China Evergrande Group is among dozens of Chinese developers that have collapsed since 2020 under official pressure to rein in surging debt the ruling Communist Party views as a threat to China’s slowing economic growth.

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    Chinese regulators have said the risks of global shockwaves from Evergrande's failure can be contained. The court documents seen Monday showed Evergrande owes about $25.4 billion to foreign creditors. [But] Its total assets of about $240 billion are dwarfed by its total liabilities.

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    About 90% of Evergrande's business is in mainland China. Its chairman, Hui Ka Yan, who is also known as Xu Jiayin, was detained by authorities for suspected “illegal crimes” in late September, further complicating the company's efforts to recover.

    It's unclear how the liquidation order will affect China’s financial system or Evergrande's operations as it struggles to deliver housing that has been paid for but not yet handed over to families that put their life savings into such investments.

    Evergrande's Hong Kong-traded shares plunged nearly 21% early Monday before they were suspended from trading. But Hong Kong's benchmark Hang Seng index was up 0.9% and some property developers saw gains in their share prices.

But not all of Hong Kong's markets are doing so well. The video below from China Observer claims that the Hong Kong Growth Enterprise Market Index has been plummeting from its peak of over 18,000 points to its current 26 points as stock prices on the Hong Kong stock market fall. 

VIDEO: "From 18,000 to 26 Points, Hong Kong’s Stock Market Plummets Like a Laxative Effect, 99% in Decline"--China Observer

    More generally, Matthew Henderson writing at The Telegraph (via Yahoo) warns that "China’s economy is about to implode. We will all feel the aftershocks."

    Evergrande, the embattled Chinese real estate giant with debts of $300 billion, has just been ordered to liquidate by a court in Hong Kong. What effect will this have, both within China and across the global economy?

    This latest twist is no surprise. Evergrande has long been dead in the water. The point to grasp is that Evergrande’s latest setback will not trigger a financial crisis in China; it is rather the result of the financial crisis which has been deepening for at least four years.

    For far too long, up to 30 per cent of the Chinese economy had depended on a grossly inflated domestic property bubble. By 2020, when the government finally took urgent measures to limit this debt, its corrosive effects had distorted and disabled both the formal banking sector and also the much less accountable and manageable Shadow Banking system. Both are now in serious disarray as a result.

    Ramifications of this unregulated borrowing and lending crisis have spread across the economy at large. The collapse of the property and construction bubble has weakened domestic economic confidence, deepening the unemployment crisis and posing major challenges to local government budgets. These domestic concerns have led to the current implosion of the Chinese stock market. In turn this has compelled foreign investors to take a more realistic position on China risk than believing the golden goose fables still being peddled by Beijing. Meanwhile, with some notable exceptions such as EVs, contraction of markets abroad for Chinese products has highlighted how much China remains export-dependent in a cooling global economy.

    All of this calls into question the capacity of the Chinese leadership to halt and reverse the decline of the wider economy. Western commentators have been saying for years that China still has significant potential to revitalise its stagnant economy. Provided swift and deep-rooted reform policies are driven through, China could still pull itself out of the current downward spiral.

    But this prospect is rapidly vanishing. The piecemeal efforts Beijing has made to prop up failing property giants like Evergrande and their backers, including the likes of Zhongzhi and Wanxiang, have had no fundamental impact. The CCP needs to devolve more economic powers to the private sector, and reverse the trend to ever-tightening centralisation. Yet Xi Jinping, seemingly unable to relinquish the self-defeating Marxist-Leninist ideology of strengthened Party and personal control, has abandoned the former and doubled down on the latter.

Read the whole thing. See also, "China rolls out fresh property relief measures to stem the fallout from Evergrande's meltdown."