Protesters and riot police clash
A massive Chinese real estate company is falling apart.
And it’s sending shockwaves
across China’s entire economy
Welcome to China Uncensored. I’m Chris Chappell.
Protests are erupting throughout China.
Protesters are hitting the streets, upset about Chinese real estate giant
Evergrande. (Evergrande is one of the biggest real estate
conglomerates in China. It employs 200,000 people nationwide and even owns a Chinese football team.
She means soccer team.
But the Hong Kong listed giant has become one of the most indebted companies in the
world with more than $300 billion worth of liabilities and its struggling to pay
it back sparking fears of a default that could send tremors through China's economy.
You see, thanks to severe government restrictions,
Chinese people don’t have a lot of places they can invest their money.
That’s why 70% of urban residents’ assets are parked in real estate of some kind.
One downside is, this has pushed China’s real estate market out of control.
And now, Chinese real estate giant Evergrande is warning it could default on its debts.
But Evergrande isn’t just a real estate developer. They also sold billions of
dollars of wealth management products to Chinese consumers.
By buying these wealth management products, people were basically loaning money to
Evergrande. And Evergrande promised huge interest rate returns of up to 13 percent.
Meanwhile Evergrande would use the loaned money for their real estate developments.
This is a classic example of Chinese shadow banking.
But Evergrande is now overdue on paying back some of those wealth
management products. Which has led to a crisis.
Over the last week, protests erupted in Evergrande offices.
Evergrande’s own employees are protesting. Because the company encouraged them
to buy their wealth management products. And now they’re not getting their money back.
These employees are yelling, return my hard-earned money.
One woman even allegedly tried to jump off the Evergrande building.
The general theme is people demanding the return of the money they invested with Evergrande.
Don’t worry, riot police showed up.
And even made some arrests.
But according to Evergrande, these protesters are just being hysterical.
On Monday night, Evergrande released a statement “saying
that any bankruptcy rumors ‘are completely untrue.’”
They wrote, “‘The company has indeed encountered unprecedented difficulties at present,
but it is determined to... do everything possible to restore operations as usual,
and protect the legitimate rights and interests of customers.’”
You see, there’s nothing to worry about.
Then on Tuesday, Evergrande released another statement saying,
ok, they have tremendous financial pressure.
“Under pressure from regulators to clean up its finances and cut back its debt,
Evergrande has been trying to sell off pieces of its empire.”
But in their statement, they said they’ve made “no
material progress” on finding investors to buy those pieces.
And, if they can’t repay their debt when due or get an extension, they might default.
But, you see, it’s not their fault.
“[Evergrande] blamed coverage in the media for its troubles,
saying that ‘the ongoing negative media reports’ had scared off home buyers.”
Yeah! If the lousy no-good media would just stay silent, then the public wouldn’t know
Evergrande was going under, so people would keep giving Evergrande their money in ignorance!
But thanks to the stupid media, the public knows and they’re upset.
But it’s not just the media coverage of the protests that’s made things
tough for Evergrande. Their problems have been brewing for a while.
Shares in Evergrande have lost four-fifths of their value over the past year.
And protests have been growing. Back in July,
we covered another string of protests against Evergrande that turned pretty violent.
I’ll put a link to that episode below.
Like I said earlier, these latest protests are about Evergrande’s wealth management products.
Last week, Evergrande said they would “impose lengthy repayment delays
on holders of [wealth management products].”
In other words, people loaned Evergrande money,
and now Evergrande wants to take their time repaying it.
One protester, whose family had invested the equivalent of about 150,000 dollars,
claims, “They said repayment would take two years, but there's no real guarantee and I'm worried the
company will be bankrupt by the end of the year.” After the surge in protests, Evergrande said they
would offer different repayment plans to those angry investors. Like, paying them back faster.
But Evergrande’s bigger problems aren’t over.
And Evergrande itself has now become a political problem for the Chinese Communist Party.
I’ll explain how after the break.
Welcome back.
Every time there’s a financial problem with a big Chinese company,
it has the potential to become a political problem for the Chinese Communist Party.
You see, your small mom-and-pop Chinese investors are drawn in by the promise of high returns and
overlook risks because they believe the Communist Party will be there to bail them out.
For instance, in 2020 after the conglomerate HNA started having major financial problems,
the Chinese government took it over, and started selling off its assets to repay investors.
And in 2018, the Chinese government seized control of Anbang—a
Chinese insurance company that owned, among other things, the Waldorf Astoria in New York City.
And then they sentenced Anbang’s chairman to 18 years in prison for fraud.
Hey, don’t hate the player, hate the systemic corruption caused by
a regime that stifles free economic competition.
But the point is: with Anbang, and HNA, and now potentially Evergrande,
the Chinese regime is taking control of so-called private companies when they screw up.
But the bigger problem here is how China’s property giants, not just Evergrande,
are milking China’s middle class.
And not just with those euphemistically titled
wealth management products I was talking about earlier.
Middle-class people buying real estate are getting burned, too.
These buyers sink their savings into developer’s apartments that are...not
done being built. You see, if you don’t have money to build a gigantic apartment complex,
you can presell these properties, even years in advance, and use that money to build them.
Except sometimes you can’t finish building, and so the people who have bought apartments
that don’t exist, find they’ve just bought—apartments that don't exist.
“Evergrande’s contract liabilities, which are mostly from such presales,
stood at [the equivalent of 34 billion dollars] as of June.”
That’s a lot of apartments. Or one really nice apartment.
And that means if the Evergrande bubble starts to burst, the Communist Party may be forced to
step in and prop up the already shaky Chinese real estate market. If they don’t step in,
protesters could turn against the Communist Party itself—blaming the Party for not bailing them out.
So the Party *will* bail them out. And that will keep inflating the already-inflated
property bubble. But if *that* bubble starts to burst, the Communist Party will just step
in and prop *that* up. And I’m sure there will never be any problems at all with this cycle.
And now it’s time for me to answer a question from a member of the China Uncensored 50-Cent Army,
a viewer who supports our channel on the crowdfunding websites Patreon and Locals.
Nsomers96 asked on Locals, “What is the likelihood of us seeing some sort of naval
conflict because of the CCP's new attempt to legitimize its claim on the south china sea?
What do you all think about this in relation to the CCPs new relationship with the taliban?
Could the CCP utilize them to attack or derail our efforts elsewhere
to deter us from looking at the south china sea? Let me know what you guys think.”
Well, I think China expects there will be a naval conflict sooner or later. According to a Pentagon
report last year, China now has the largest navy in the world. Yes, bigger than the US.
Of course, the sheer number of ships might not be the most important factor.
China hasn’t fought a war in decades.
But China has been building artificial islands in the South China Sea and putting missile
launchers on them. And China has been focusing on so-called aircraft carrier killer missiles.
Some are saying, short of war, China already controls the South China Sea.
And as you can see from this chart, China is ramping up incursions into Taiwan’s airspace
Now no one knows what China’s plans with the Taliban are.
Their spokesperson said they plan to get Chinese money.
If so, that could be a dangerous alliance for the US.
Still, the US conducts regular freedom of navigation operations in the South China Sea.
And US support for Taiwan is pretty solid. Based on what the Biden administration has done so
far, it seems unlikely the US will shirk its responsibilities to Taiwan or the South China Sea.
Thanks for your question, Nsomers96.
And thanks for supporting China Uncensored on Locals. If you haven’t checked out Locals yet,
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Once again I’m Chris Chappell. Thanks for watching China Uncensored.