Chinese real estate corporations’ debt levels are at an exceptional level. According to the Financial Times, the net debt ratio of China’s 19 most prominent real estate developers is more than 60% of equity.
In many ways, Evergrande can be the most prominent “time bomb” of Chinese real estate. So how is this ‘Time Bomb’ currently shaking the world?
The Guardian quoted China researcher George Magnus as writing: ”China’s real estate market has been called the most important sector in the world economy. Valued at about $55trillion, it is now twice the size of its U.S. equivalent, and four times larger than China’s GDP. Taking into account construction and other property-related goods and services, annual housing activity accounts for about 29% of China’s GDP, far above the 10%-20% typical of most developed nations.”
US stocks react
As soon as Evergrande showed signs of a collapse, the U.S. stock market reacted, falling sharply in the session on Sept. 20, as investors worried about the weakening trend of the market in September and the risk of default of Chinese real estate group Evergrande. At the end of the session, all 11 significant stocks in the S&P 500 industry were red.
The Dow Jones Industrial Average slid 1.8% to 33,970.47 points, marking its most significant drop since July 19.
The S&P 500 fell 1.7%, the most significant drop in more than four months.
The “famous” Nasdaq index plunged 2.2%, to 14,713.9% points.
Market leaders are no exception: Apple is down 1%, chipmaker Nvidia is down 2.7%.
Banks suffered significant losses due to falling bond yields. That affects their ability to charge higher interest rates on loans. The yield on the 10-year Treasury note fell to 1.32% from 1.37% late on Sept. 17. Bank of America fell 3.1%.
Impact on cryptocurrencies
Evergrande-related worries also link to a drop in the crypto market. Bitcoin trading on the evening of Sept. 21 was 13% lower than a week earlier, as the uncertainty caused investors to lose money—investors stay away from riskier assets.
The crypto market has seen a decline amid Evergrande headlines recently, but digital currencies are also notoriously volatile and tend to have sudden price swings.
Robert Hockett, a law professor at Cornell University whose research focuses partly on financial and monetary law, told ABC News by email that assets described with the word “cryptocurrency” are likely to be hit hardest in asset sales like those of 13 years ago.
Bitcoin, Ethereum, and others “according to that find themselves hardest hit right now—even more than more traditional speculative firms like Goldman,” he added.
Asian stock markets wobble
China Evergrande shares were halted from trading on the Hong Kong stock exchange after the property developer failed to make interest payments on foreign loan obligations for the second time in a row last week.
MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.3%. The index marked the first quarterly decline in six quarters.
Hong Kong led the decline, with the Hang Seng Index down 1.9%. Japan’s Nikkei erased earlier gains, falling as much as 1.4% to a one-month low of 28,375 points.
In Vietnam, the HSX and VN Index decreased by 1.2% compared to the previous week, reaching 1,334.98 points, the HNX Index fell by 0.9% compared to the last week, reaching 356.49 points.
World reacts: Stop investing, break away from the CCP as soon as possible
The author of the book “The Coming Collapse of China.” Gordon Chang, recently published in “Capitol Hill,” that the crisis will depress the Chinese economy, and the United States must separate from China to reduce the damage.
Although CCP authorities claim that their foreign exchange reserves are still as high as $3.23 trillion, Zhang Jiadun—an expert on China affairs, said that China’s real estate industry accounts for more than a quarter of the entire economy. As a result, contractors, suppliers, and buyers no longer trust each other. He said that in this environment, even financially sound developers could fail.
Zhang believes that China’s economy will sooner or later face big shocks, and the country will collapse.
He said the CCP does not have a good future, and the United States should separate from China in a hurry.
Zhang’s call is not unreasonable when we take a closer look at the truth behind the investment flows into China. By understanding their nature, we will see the problem more generally.
Where does the CCP budget come from?
China is one of the world’s most populous countries, but hardworking citizens nonetheless live in constant fear of poverty.
The work ethic of Chinese culture is based on Confucian principles, requiring respect for the elderly and perfectionism at work. Traditional Chinese values such as intelligence, hard work to create wealth, thrift, not avoiding hard work, not being afraid of hardship have created an economic boom in China.
“The attraction of workers” has made the money flow from Western countries, especially from the United States to China, massive.
The U.S. has provided China with many accessible technologies and poured in hundreds of billions of dollars. In addition, it opened the U.S. market and the Western world to China and assisted Beijing to join the World Trade Organization (WTO) even when the Soviet Union collapsed and the CCP launched the Tiananmen Square Massacre.
According to statistics, U.S. direct investment in China from 2000 to 2020 has reached nearly $1,196.46 billion. From 1979 to 2015, the total value of foreign investment capital poured into China reached $1,642.3 billion.
Thus, China’s economic achievement is due to the opportunity and support provided by the United States and the hard work of the Chinese people to create wealth.
So after having this money, what will the CCP do? Worrying about the well-being of the people or helping the Chinese people have a better life? Well, there is no evidence of that happening.
Investing in the CCP is aiding the CCP to suppress human rights
On March 12, 2020, The Washington Post published a letter requesting prosecution against the passive investment index. The letter denounces the passive investment tools of the capital market that currently dominates the United States. Washington Post columnist Josh Rogin points out that Wall Street’s use of these devices to invest American capital in the troubled Chinese market poses a more significant threat than the coronavirus.
Rogin quoted President Trump’s National Security Adviser, Robert O’Brien, saying American investors must raise capital from other companies to help the CCP. So why does this problem appear again? These activities make it possible for the CCP to oppress people, invade countries worldwide, build fortresses in the South China Sea, and dominate the aviation field. Not to mention the background records of human rights violations and the actual dissemination activities sanctioned by the U.S. Government, etc.
The Federal Retirement Thrift Investment Board (FRTIB) has so far rejected bipartisan objections to management money moving from the International Fund Index to the Market Index. In addition, global Investment (excluding the U.S.) is recommended by MSCI (MSCI All-Country World ex-US Investable Market). These two indexes account for 7% of the money invested in Chinese businesses, including many Chinese companies reported under sanctions and export bans from the United States. Because of this decision by the FRTIB, more than $50 billion may be invested in China.
The Committee on the Present Danger: China (CPDC) asked the FRTIB to withdraw this decision. The CPDC said, “The Chinese companies that FRTIB invests in have been involved in the persecution of mass groups such as Falun Gong, Uyghurs in Xinjiang, Christians, etc. Furthermore, it is a threat to the national security of the United States.”
The Washington Freedom Beacon reported on Oct. 14, a financial report filed by special U.S. presidential envoy for climate John Kerry at the beginning of the year, stated Kerry holds more than $1 million in investments in Hillhouse China Value Fund LP. Meanwhile, Hillhouse is a “top shareholder” of a Chinese technology company called YITU Technology, which is involved in the CCP’s high-tech surveillance activity against the Uighurs. For example, the company helped develop facial monitoring software for the CCP to classify individuals by race and ethnicity.
In 2019, YITU Technology was blacklisted by the U.S. Department of Commerce under President Trump for being complicit in the surveillance, detention, and persecution of Uighurs and others. In other words, Kerry appears to be profiting from slave labor.
Initiator of the “Uighur Forced Labor Law,” Sen. Marco Rubio (R-Fla.), wrote an article on Fox News on Oct. 15 calling on President Biden to fire Climate Envoy John Kerry immediately.
Rubio warned that Mr. Biden had only “one choice”: Support those who profited from slave labor or fire Kerry.
Kerry obtained shares in Hillhouse through his wife, who is a beneficiary of the trust. Despite this, he still stated in his financial statements that they were not involved in managing investments.
According to a copy of the IPO prospectus submitted by YITU Technology to the Science and Technology Innovation Board of the Shanghai Stock Exchange in Nov. 2020, Hillhouse is one of YITU Technology’s largest shareholders and has been leading the way in investing $55 million in this company in 2017.
Hillhouse China Value Fund is part of Hillhouse Capital Group, a giant investment group headed by Chinese businessman Zhang Lei.
Investing in the CCP, you are offering them your intellectual property
Here we talk about companies that directly invest and set up factories in China.
According to CNN, China forces companies to hand over trade secrets in exchange for market access. In addition, in some areas, Beijing will only allow foreign companies to operate through joint ventures in which Chinese partners hold a majority stake.
International companies have long complained that China has put intense pressure on them to hand over trade secrets for market access. In some areas, Beijing will only let foreign companies operate through joint ventures in which Chinese partners have a majority stake.
Foreign businesses must invest money, business “formulas,” and “intellectual property” assets to survive and set up business projects in China.
A report released by U.S. Trade Representative Robert Lighthizer claims that CCP regulations mean foreign companies must hand over all critical technologies used in vehicles’ electricity if they want to sell them in China.
Parker, executive director of the U.S.-China Business Council, said foreign companies often have to “make tough choices about managing the trade-offs of technology sharing and market access.” He said that about a fifth of U.S. companies operating in China has been pressured to transfer technology to Chinese partners in the past three years.
The actual number could be even higher. Handing over critical technologies and intellectual property to Chinese companies is a sensitive topic.
Since then, Chinese companies have gradually acquired the technology of their foreign partners, creating the basis for a market for “ultra-cheap” counterfeit goods that spread throughout the country and the world.
Stealing technology is just one of many ways that Xi Jinping realizes his plot to usurp the United States and dominate the world.
Invest in the CCP, you are harming yourself
According to the Chinese-language Epochtimes, people, whether individuals, companies, or countries, seek short-term benefits, which has created conditions for the CCP to take advantage of them.
America’s short-term policy towards the CCP mostly comes from the interests of the period but not from the most fundamental and long-term interests of the founding spirit of the United States.
Many national governments, large companies, and businessmen on the surface or for the moment can gain so-called “benefits” from China, but sacrificing moral principles ends up ruining them. Those surface benefits are poison. Only by not being greedy for immediate benefits can a bright future be achieved.
China is not a political party or government in the ordinary sense; it does not represent the Chinese people. Therefore, communicating with China cooperates with evil things; being friendly with China is indulging and helping evil do bad things, pushing humanity to the end.
Is Evergrande a repeat of the 2008 Lehman Brothers’ financial crisis?
Investors are also worried that this could look like a Lehman Brothers catastrophe. In 2008, the collapse of the U.S. investment bank and the subsequent bailouts of several other banks led to the global financial crisis.
Of concern for many in China and beyond is whether Evergrande’s failure could have spillover effects on other companies doing business with them as well as on financial markets around the globe.
Is the world’s reaction justifiable or an overreaction?
That depends on two things: “One—does Evergrande really constitute a systemic risk to the Chinese economy? Two—if so, can the CCP manage to contain the risk?”
According to ABC News, Brad McMillan, a chief investment officer of Commonwealth Financial Network, said Americans shouldn’t panic about the so-called “Lehman Brothers moment.”
“Despite the anxiety, so far this looks like a corporate bankruptcy and nothing worse,” McMillan said. It’s a big deal, he says, but one that can be handled.
He added that both the U.S. government and regulators and banks and financial institutions are very aware of the situation in China, and at least they are thinking about how to mitigate the risks.
On French radio RFI, Jean-François Dufour, director of the DCA Chine Analyse consulting agency, emphasized the seriousness of the dossier, which is causing headaches for Beijing.
Dufour said that the Chinese government interferes in economic activities in all situations, so the scenario of this big company going bankrupt by definition in the West is impossible.