After Covid, another threat from China: the real estate bubble scares the markets and the Communist Party

Many observers do not understand that any economic and financial crisis in the People's Republic of China would have deleterious effects throughout the world. It is not difficult to understand why.

The globalization we have witnessed in recent decades essentially carries the Chinese brand (and not the American one as previously believed). Beijing has shown remarkable skill by tying the economies of many countries to its wagon. And it's not just about Africa, Asia and Latin America.

In fact, Europe is also fully involved. Germany, for example, is extremely cautious in managing its relations with the Dragon since it knows that a Chinese crisis would damage its own economy, which has a fundamental outlet for its exports in China.

Precisely for this reason the crisis (which seems structural) of the Chinese construction giant Evergrande is causing great concern everywhere. To understand each other, we are talking about a gigantic company (200,000 employees which, with the related industries, rise to 3.8 million).

However, it has been discovered that Evergrande also carries $ 305 billion in debt on its shoulders that it currently does not know how to repay. It has 1300 building projects spread across 280 Chinese cities.

The problem is that a large number of families have bought, and already paid for, apartments which, however, do not exist because they were never built. A violent protest by citizens on social networks was therefore unleashed.

But many disappointed buyers did not hesitate to take to the streets to protest in person against the company and the communist authorities, guilty of not being able to carefully control the activities and budgets of the real estate giant. There is also talk of cases of widespread corruption.

The protests in the streets are, from the Chinese point of view, a big news. In the People's Republic, in fact, public demonstrations are strictly prohibited, except those authorized by the Communist Party. Everyone remembers how the demonstrations by the Hong Kongers were crushed (which, however, had very different motivations).

Buyers of non-existent homes rightly claim to recover the sums invested. And that is unlikely to happen, given the heavy debt of a giant that has dominated the Chinese real estate market for decades.

To this must be added a dissatisfaction of a different nature. The Communist Party has repeatedly boasted of having managed to definitively defeat the pandemic due to the coronavirus .

However, this is a fake news spread for propaganda reasons. In reality, more or less large outbreaks continue to occur. We saw this a few weeks ago when the great port of Ningbo in Zhejiang, the third largest freight hub in China and fundamental base of the global export that the People's Republic has been conducting for decades, suddenly stopped due to the discovery of new virus oubreaks.

Returning to the case of Evergrande , the opacity of the Chinese information system has not so far made it possible to understand how Xi Jinping and his management team intend to tackle the problem. Note that the founder of the group, Cantonese Xu Jiayin, is one of the many tycoons of the People's Republic who have grown enormously in recent decades, and like everyone else, he has a Party card in his pocket.

He also owns the Guangzhou Evergrande soccer team, which has won many leagues in recent years. Until now it was coached by the Italian Fabio Cannavaro who, however, sensed the wind, immediately decided to resign.

Xi's neo-Maoist politics, increasingly virulent attacks on tycoons like Jack Ma, the now marginalized Alibaba founder, and the new Party-sponsored statism, would lead one to believe that the government will intervene with a debt restructuring of Evergrande .

However, it would be a very difficult operation from a financial point of view, the costs of which would inevitably fall on the shoulders of taxpayers. The alternative is to let the real estate giant go bankrupt, adopting the same strategy used in the famous case of the Lehman Brothers crash in 2008.

The question is whether Xi Jinping, who intends to be elected "president for life", can afford such a way out. The writer does not believe it. After all, the People's Republic has continued to thrive thanks to a sort of "social pact" that promises citizens continuous growth in exchange for the renunciation of certain fundamental freedoms, and this solution would precisely mark the end of the aforementioned pact.

In the meantime, the Evergrande case has created fears in all the world stock exchanges, which look at events with bated breath. And the rating agency Fitch has already estimated that the scandal will lead to a slowdown in China's GDP, which should go from 8.4 to 8.1 percent. Proof of the fact that, as many have pointed out for some time, the Chinese economy is not a true market economy, but a strange system – devoid of transparency – totally dominated by the Party-State, to which the many blunt billionaires are also closely linked like mushrooms after the nominally privatist reforms promoted by Deng Xiaoping.

The post After Covid another threat from China: the real estate bubble scares the markets and the Communist Party appeared first on Atlantico Quotidiano .

This is a machine translation from Italian language of a post published on Atlantico Quotidiano at the URL on Sat, 25 Sep 2021 03:50:00 +0000.