IN FOCUS
By Avishka Ashok

Chinese government contemplates mitigating the impact of Evergrande’s debt crisis

On 3 October, the Wall Street Journal reported that the Evergrande Group’s debt crisis has created uncertain circumstances for investors as the Chinese government contemplates the way forward to prevent the company from negatively impacting the Chinese national interests. The Evergrande Group, a Chinese property developing company, is unable to pay off a debt worth USD 300 billion as it accumulated assets and expanded its business over the years. However, the sales have been declining for the past few months and it seems unlikely that the sales will shoot in the coming months. Other than the USD 300 billion debt to bondholders, the company also owes USD 103 billion to construction companies and other businesses affiliated with the company. Since financial institutions have restricted the funds, the company has been struggling to pay its suppliers.

The private companies in China and abroad are keenly looking at the Chinese government’s response and how they deal with the financial crisis at home which threatens to impact the national economy as well. Observers of the situation note that the government has not taken any serious measures yet as it plans on making an example of Evergrande company and shows other companies that the government will not swoop in and save it from financial miscalculations. However, since the Chinese government is involved in the Chinese economy, it will prevent the condition from becoming worse. According to the deputy dean of Shanghai Advanced Institute of Finance, “the government is still going to provide a guarantee for much of Evergrande’s activities but the investors are going to have to sweat.”

Meanwhile, the local governing bodies are also keeping a close watch over aggrieved buyers, unpaid vendors and laid-off employees to understand the state of public discontent and to quell any protests in the future. They have also implored communist party leaders to keep a watch on people’s movements related to property developers. The housing department of Lingshan County said: “Follow the demand to spot them early, defuse early, control early and deal with early. The heads of property development firms must personally take in hand the work of dealing with petitions and maintaining stability.” The government has also urged banks to ease the credit for homebuyers and support the property sector in China. Other measures taken by the state include buying part of Evergrande’s stakes and also injecting USD 123 billion into the financial system in a period of 10 days. The measures taken by the state however, may be seen as an effort to only limit the impact of the financial crisis. It will be much more challenging for China to completely save the economy from any backlash coming out of the debt crisis.

References

“China’s Evergrande Debt Crisis: Sizing Up a Big Mess,” The Wall Street Journal, 3 October 2021

“How China Plans to Avert an Evergrande Financial Crisis,” The New York Times, 26 September 2021

“China increases efforts to contain Evergrande crisis and not save it,” The National News, 4 October 2021

“Explainer | The Evergrande Crisis And How It Can Spiral Into A Global Financial Crunch, Moneycontrol.com”

IN BRIEF
By Dincy Adlakha and Keerthana Nambiar

INTERNAL
China’s top banking and insurance regulator to provide financial assistance for power crisis
On 5 October, China Banking and Insurance Regulatory Commission released a circular urging financial support for coal and electricity production. The circular also mentioned financial strengthening to ensure regular supplies and stabilized prices. The circular provides detailed guidelines on the prohibition of using these funds for speculating on coal and power sectors and also disallowed withdrawal of loans from projects in the relevant area. This circular was released in the context of extensive power outages in northwestern China and speculations of a larger power crisis in the upcoming spring and winter. (“China strengthens financial support for coal, electricity production,” Xinhua Net, 5 October 2021)

China’ Tianwen-1 suspended activities due to “solar outage”
On 6 October, the China National Space Administration announced that China’s Mars orbiter and rover’ exploration, Tianwen-1 have been suspended since mid-September. The administration stated that this was due to a “solar outage”. This is a situation when Mars and Earth move perfectly aligned to either side of the Sun the solar electromagnetic radiation increases leading to disrupted communications between both the planets. And the outage may possibly last till mid-October. (“China's Mars probes suspend explorations due to sun outage,” XinhuaNet, 5 October 2021; “China's Mars probes suspend activities due to 'solar outage',” Anadolu Agency, 6 October 2021)

REGIONAL
Taiwan’s toughest time in 40 years, says Taiwanese Defense Minister
On 6 October, South China Morning Post published a story on China’s ability to conduct a full-scale invasion in Taiwan by 2025 according to Taiwanese Defense ministers Chiu-Kuo. The Minister was addressing the legislative session to review a special budget for domestically produced weapons where he said that neither Taiwan is meant to nor has the financial capacity to face Beijing in an arms race. Chiu quoted, “It’s the toughest situation I have seen in more than 40 years of my military life.” He warned of the risks of the conflict as tensions have ratcheted up in the Taiwan Strait with Beijing sending 150 warplanes on the island. Chiu further added that Taiwan must rely on itself for defending against China. (“Beijing ‘fully able’ to invade Taiwan by 2025, island’s defence minister says,” South China Morning Post, 6 October 2021) 

Taiwanese Defence Minister points at the worst military tensions between China and Taiwan in 40 years
On 6 October, Taiwan’s Defence Minister Chui Kuo-cheng said that the military tensions between China and Taiwan are at the worst in 40 years. He also warned of an accidental “misfire” between the two. The remarks came as he spoke in the parliament on being asked regarding the military situation. He referred to the four-day series of “serious” incursions. Along with these remarks, the defence minister also promoted a new arms package with an increased budget to the lawmakers. (“China-Taiwan military tensions 'worst in 40 years',” BBC, 6 October 2021; “Taiwan defence minister pushes new arms spending, says China tensions worst in four decades,” Reuters, 6 October 2021)

INTERNATIONAL 
Chinese diplomats confirm President Xi Jinping’s absence from G20 Rome Summit
On 6 October, South China Morning Post reported that Chinese envoys have informed that President Xi Jinping will not attend the October summit of Group of 20 nations in Italy due to COVID-19 protocols. Previously, China had not confirmed the presence of President Xi in the summit. The confirmed absence from G20 summit raises speculations over his attendance in the COP26 climate conference in Glasgow as well. (“G20 summit: China’s President Xi Jinping ‘will not be in Rome’,” South China Morning Post, 6 October 2021)

Chinese diplomat rejects accusations of human rights abuse by US envoy at UN debate
On 5 October, a Chinese envoy exercised his right of reply in the general Debate held during the Third Committee of the United Nations General Assembly. The diplomat responded to the accusations posed by the US envoy over human rights abuse in the Xinjiang Uyghur Autonomous Region of China. Zhang Jun, China’s permanent representative to the UN, categorically rejected the allegations and termed them as part of the US promoted ‘lie diplomacy’ to destabilize China’s development. The envoy called for greater dialogue and cooperation instead of confrontation. (“Chinese envoy rejects U.S. accusations at UN debate,” Xinhua Net, 5 October 2021)

The Biden-Xi agreement on Taiwan
On 5 October, US President Joe Biden declared that he and the Chinese President Xi Jinping came to an agreement on Taiwan as the tensions have escalated between Beijing and Taipei."I've spoken with Xi about Taiwan. We agree ... we'll abide by the Taiwan agreement," Biden said. "We made it clear that I don't think he should be doing anything other than abiding by the agreement." Biden seemed to be referring to Washington’s longstanding policy which officially recognizes Beijing rather than Taipei and the Taiwan Relations Act, wherein Washington’s decision to establish ties with Beijing instead to Taipei is clear and the future of Taiwan would be determined peacefully. (“Biden says he and China's Xi agree to abide by Taiwan agreement,” Reuters,6 October 2021; “Biden Says He and China’s Xi Will Stick to ‘Taiwan Agreement’,” Bloomberg, 5 October 2021)

The US national security advisor and Chinese diplomat to “exchange views”
On 6 October, the Chinese Foreign Ministry announced a meeting between senior Chinese diplomat Yang Jiechi and U.S. National Security Advisor Jake Sullivan in Zurich, Switzerland. The meeting will be “according to the consensus reached by Chinese and US heads-of-state on September 10 in their phone call as agreed upon by China and the United States, “said the spokesperson Hua Chunying. She said, “they will exchange views on China-US relations and relevant issues”. (“Senior Chinese diplomat to meet with U.S. national security advisor,” Xinhua Net, 6 October 2021)