NIAS Area Studies
PAKISTAN READER
Photo : Caixin Global
IN FOCUS
By Sukanya Bali and Keerthana Nambiar
Evergrande Debt Crisis continues: Four questions
On 3 January, Evergrande announced that authorities at Danzhou city ordered the demolition of 39 under-construction residential buildings of the Ocean Flower Island project, in Hainan province. Local media reported that the project had harmed the marine environment. On the same day, Evergrande shares were suspended from trading.
The company has been struggling to repay its USD 300 billion liabilities including USD 20 billion in offshore bonds. Rating agencies downgraded the company last month after it missed its payments. According to Reuters, during the meeting with bondholders from 7-10 January, Evergrande Group will seek a six-month delay in redemption and coupon payment of USD 157 million bonds.
What is China’s Evergrande?
Evergrande, the second-largest real estate developer, formerly known as the Hengda group was founded in 1996. The company grew rapidly through “loan-supported land-buying and selling apartments” at low margins rate. The Evergrande Real Estate owns more than 1300 projects nationwide. In 2020, the company had a revenue of nearly USD 110 billion and nearly USD 355 billion in assets. The company grew branches into businesses such as electric vehicles (EV), bottled water, insurance, and soccer teams.
Why is Evergrande facing a crisis?
Given the rapid growth of the real estate market underscored by massive borrowing, the company started facing challenges in September 2020.
First, Chinese regulators crackdown over the “reckless borrowing” habits of developers. This came after the Chinese regulator held a meeting with 12 major property developers. Regulator posed caps on debt ratios known as the “three red lines” which outline limits for “debt-to-cash, debt-to-assets, and debt-to-equity ratios.” Second, the pandemic lockdown halted the sales in the real estate market. The demand for new apartments plummeted among the younger generation.
What are the developments in the Evergrande crisis in 2021?
In September, the group came into the spotlight after missing the deadline of the coupon payment of nearly USD 280 million. Failing to pay its installments back to foreign investors after the 30 day grace period, in December, the company accepted it is “unlikely to continue to meet its financial obligation.” Fitch Ratings placed Evergrande in the “restricted default” category.
In 2021, the Evergrande shares fell by 89 percent. According to Barclays, there are more than “800 unfinished projects, with an investment of 1.6 million people.” To further raise funds, the firm started selling its assets and unfinished properties at a discounted rate.
Government assistance: In December, officials from several state-backed institutions joined the company's risk committee to “mitigate and eliminate” The debt crisis, as the list of unpaid creditors and suppliers continued to grow. A state-owned enterprise also struck a deal of USD 1.5 billion to buy Evergrande's stakes in a commercial bank, Shengjing Bank. China’s central bank blamed Evergrande for its “poor management and reckless expansion.” Yi Gang, the central bank governor said: “Evergrande was not likely to get a bailout.” He also added, the crisis is limited to the company only.
Public reactions: Multiple protests have been quashed by the local police. Dozens of protestors started gathering daily outside Evergrande headquarters, in Shenzhen. Protestors waved banners and chanted “Evergrande, return our money.” In October, employees also joined buyers and contractors, protesting outside for the payment of outstanding bills. On 4 January, as the yearly property sales plunged by 39 percent, protestors gathered outside demanding the developer “to give their money back.”
Foreign investors: By December foreign investors were owed USD 1.3 billion bond payment which is expected to rise to USD 17 billion by April this year. The investor is worried the money will get stuck and will face major difficulty in recovering the same.
What's next?
The further slowdown in the company's business operation might lead to; First, a downfall in the job market created by Evergrande. Second, potential money loss to buyers may lead to social instability and will impact the country's economic growth. Third, decrease in foreign investments in the domestic companies, due to the fear of financial bankruptcy.
References:
With property Sales Plunging, China Evergrande Faces More Protests, The New York Times, 4 January 2021
As pressure mounts, China Evergrande seeks delaying onshore bond payment, Reuters, 5 January 2021
China Evergrande gets building demolition order; share trading halted, Reuters, 3 January 2021
Japan-US deepen defense ties to counter China’s rising power
Global Times
On 7 January, Global Times reported on the US-Japan 2+2 virtual meeting aiming to deepen cooperation with a new five-year agreement. The new agreement is on sharing the cost of the US military presence in Japan. Global Times says, “The meeting involved foreign and defense ministers from the two countries and also - somewhat routinely - targeted China.” On 8 January, Chinese Ministry spokesperson Wang Wenbin expressed his strong dissatisfaction about the new development. Wang said: “China urges the US, UK, and Australia to stop their nuclear submarines project, stop pushing for Fukushima nuclear-contaminated water to be released into the Pacific, stop denying and beautifying historical militarist aggression, and stop stirring up region division.”
Global Times included comments from Liu Jiangyong, vice dean of the Institute of Modern International Relations at Tsinghua University on Japan amending the war-renouncing constitution. Liu explains that the amendment allows Japan “to form a US-centric bloc” along with Australia and enable a joint operation against China. Under the new law enforcement, Japan will become a “war-able country.” The report includes another comment by Lü Xiang, a research fellow and expert on US studies at the Chinese Academy of Social Sciences. Lü says that Japan is taking steps to keep the US military presence with the aim of containing China. “But Japanese politicians have realized that China's military development has made Japan-US collusion less and less meaningful,” he added. Lü concludes by saying that Japan’s alliance with the US has its own risks.
China Daily
On 5 January, China Daily reported on Japanese Prime Minister Fumio Kishida’s “alliance solidifying” spending in hosting the US military forces. The article discusses Japan’s payment of a total of 1.55 trillion yen for the bilateral joint exercises and the solidifying ties between the US and Japan. It discusses the US-Japan alliance during the Trump administration and the changes when Biden came into power. China Daily mentions comments from professors and research scholars on the US-Japan alliance and how the alliance will be the “touchstone of Kishida’s diplomacy” and Tokyo will have to face a harsh diplomatic and security environment. Sun Wenzhou, an assistant research fellow with the China Institute of International Studies, believes that the “Japan-US alliance should not be enhanced at the cost of China's strategic interests.”
Perspective
The defense agreement between the US and Japan to counter the rise of China will necessarily stabilize or destabilize the security of the region. The new formula of sharing the cost of US military forces in Japan solidifies the US-Japan alliance which was at stake during the Trump administration. China sees this as a challenge to its growing military and economic power in the region. Beijing condemns the alliance and adds fuel to the ongoing US-China rivalry.
References:
“Japan deepens defense ties with US to target China, seeking to justify amending the war-renouncing constitution,” Global Times, 7 January 2022
“US-Japan ties moving forward on all fronts,” China Daily, 5 January 2022
IN BRIEF
By Dincy Adlakha and Avishka Ashok
INTERNAL
Authorities investigate chairman of China Life Insurance
On 8 January, the bureau for China’s Central Commission for Discipline Inspection (CCDI) announced that it placed the chairman of China Life Insurance Mr Wang Bin under investigation. The statement read that Mr Wang is “suspected of serious violations of discipline and law, and is currently undergoing disciplinary review and investigation.” The institution has recently put strict measures to investigate the financial sector in China to identify and serve corrupt officials. In October, the central bank and stock exchanges of China were also put under scrutiny. (“China anti-graft watchdog investigates China Life Insurance chairman,” The Straits Times, 8 January 2022)
Carrie Lam orders investigation in high-end birthday party COVID-19 cases
On 8 January, Hong Kong leader Carrie Lam ordered a probe into a birthday party of a delegate to the Chinese legislature held on 31 December 2021. The investigation is ordered to figure out if the officials involved in the party broke any rules enforced as part of anti-epidemic efforts. While ordering the probe, she informed that the number of guests in the party exceeded 180, including Home Affairs Secretary and Secretary for Financial Services and Treasury. Additionally, 19 other lawmakers attended the party. There has been one positive case reported from the party and hence, the measures are at full speed to quarantine and investigate the nature of the party. At the time of the event, there were already some guidelines passed by state-supported authorities that prohibited collective and community level gatherings on New Years’ Eve. (“HK leader Carrie Lam orders probe into officials in Covid-19-laced birthday bash scandal,” The Straits Times, 8 January 2022)
6.9 magnitude earthquake hits Qinghai province
On 8 January, the information office of the Qinghai provincial government held a press conference and reported that no casualties had been reported after an earthquake of 6.9 magnitudes hit the region at 0145 hours on the same day. The China Earthquake Networks Centre reported that the epicenter was found at 37.77 degrees north latitude and 101.26 degrees east longitude with a depth of 10 kilometers. The Qinghai province declared a level II emergency response, soon after the earthquake. (“No casualties reported yet after 6.9-magnitude quake hits Qinghai,” Xinhua Net, 8 January 2022)
INTERNATIONAL
President Xi sends a message to President Ghazouani of Mauritania
On 8 January, Chinese President Xi Jinping sent a message to Mauritanian President Mohamed Ould Ghazouani after he was detected with the coronavirus. Xi Jinping extended his well wishes to Ghazouani and hoped for a speedy recovery. The message supported the leadership of Ghazouani and believed in his efforts to deal with the pandemic. It said: “The Chinese government and the Chinese people firmly support the Mauritanian government and people in the anti-pandemic fight.” (“Xi sends message of sympathy to Mauritanian president,” Global Times, 8 January 2022)
Chinese foreign ministry urges US and Japan to maintain regional peace and stability
On 8 January, Chinese Foreign Ministry Spokesperson Wang Wenbin stated at a daily press briefing that China has sent strong representations to relevant countries urging regional peace and stability. He also criticized the “two-plus-two” talks between Australia and Japan as it continuously attempts to interfere in China’s internal affairs and weaves the fabric of lies. The statements came after the foreign and defense ministers of the US and Japan signed an agreement to work together and respond to the “destabilizing activities” by China. He urged the three nations and also Britain to refrain from whitewashing their intentions and twisting facts over various matters concerning China. (“China urges relevant countries not to disrupt regional peace, stability,” Xinhua Net, 8 January 2022)
Foreign Minister visits the Maldives and Sri Lanka
On 7 January, Chinese Foreign Minister Wang Yi visited the Maldives on the occasion of 50 years of diplomatic relations between the two countries. The visit to the Maldives was followed by his visit to Africa where he focused upon fighting the pandemic together. In the Maldives, Wang Yi observed that China’s relation with the Maldives had helped the country deal with the pandemic by building medical infrastructure and supplying the country with vaccines and other essential facilities. He is also planning on visiting Sri Lanka over the weekend when the two countries will celebrate the 65th anniversary of China-Sri Lankan diplomatic relations. (“Chinese FM’s visit to the Maldives, Sri Lanka shows BRI progress: analyst,” Global Times, 7 January 2022)
Comorian President meets Chinese Foreign Minister
On 6 January, Comorian President Azali Assoumani met Chinese State Councilor and Foreign Minister Wang Yi who was on a visit to three states from Africa. The President sent his congratulatory wishes to Chinese counterpart Xi Jinping and also emphasized that China is very special for Comorians. He said that the country is inspired by China’s development and achievements. This success also brings in opportunities for Africa. He also noted that Comoros will always stand with China on the Taiwan issue as it is an inseparable part of China. State Councilor Wang Yi conveyed gratitude for the Comorian support. He also briefed on China’s wishes to deepen trust and partnership. He identified three major priorities in their relations; universal immunization, eliminating malaria by 2025 and supporting Comoros Emerging Plan for 2030. The two officials set the tone for mutual cooperation. On the same note, State Councilor Wang Yi also met Comorian Foreign Minister Dhoihir Dhoukamal. (“Comorian president meets with Chinese state councilor,” Xinhua Net, 7 January 2022)