Evergrande was not so much. Not big enough to force China to save it from its own managers, as if it were a systemic risk.
Although the alarms went off during the pandemic, it was last Monday when a Hong Kong judge issued the death certificate. The world is concerned about the shock wave in the second economy, but the People’s Republic believes it has understood that it must build – and build – in another way.
Evergrande, based in Canton, is the most indebted construction company in the world, with debts exceeding 300 billion euros. In addition, it has no liquidity or credit to complete thousands of projects already started. It represents the largest bankruptcy in Chinese business history since the 1990s.
However, Beijing has refused to go all out, contrary to the investment forecasts of several Western funds and banks.
The judge, Linda Chen, after confirming the non-existence of a debt restructuring plan, despite successive extensions, has appointed the consulting firm Álvarez and Marsal, the same one that took over Lehman Brothers in 2008, as administrator of the liquidation.
However, bankruptcy proceedings in Hong Kong are only recognized in three cities in mainland China and for just over two years. Therefore, they do not have many illusions.
Evergrande shares on the Hong Kong Stock Exchange became worth 200 times more, making its founder, Xu Jiayin, the richest in China. Since September, Xu has been under house arrest. Two years earlier, he had divested himself of 10% of the shares, but maintains two-thirds.
For millions of Chinese, the lesson is huge. The bankruptcies of Evergrande and Country Garden have further cooled their buying appetite. In the case of Evergrande, six hundred thousand families have been waiting for up to five years, after having paid the down payment for their apartment.
Real estate companies, believing that urbanization was infinite, leveraged themselves to continue building. Often almost contiguous hives, with dozens of plants, of a clonal ugliness. During the pandemic, metropolises became mousetraps and rural exodus, marriages and spending slowed down, while teleworking grew.
Exports also plummeted. The bubble was burst then, although the Hong Kong judge took the minutes a week ago.
The Chinese Government insists on seeing the glass half full. The fall of hyper-indebted real estate companies would be an inevitable and even desirable correction. A way, furthermore, to encourage savings and capital to be directed to sectors with greater innovation and added value. If the real estate segment represents 4% of Chinese GDP, construction and associated activities represent six times more.
Maybe too much. But the Shanghai stock market lost 6.2% last week, its worst week since 2018.
City councils bear part of the responsibility in the years of excesses. As owners of the land – which in China is never private – they allowed themselves to be fooled by easy money.
Some try to purge their guilt. See the one in Shijiazhuang, 300 kilometers south of Beijing, which says it has completed 20 of the 24 promotions that had been left halfway. None are from Evergrande.
For President Xi Jinping, guaranteeing the delivery of the apartments is a priority, while other cities are raising obstacles to the acquisition of several homes. The Chinese have understood the message and are leaning towards public promoters.
Although the real estate crisis is not exclusive to China, due to its dimension it evokes two ghosts. One, that of Lehman Brothers, already noted. The second, that of Japanization. That is, a decades-long deflationary nap.
However, the State in China has an arsenal of resources far superior to that of today’s Western States.
Likewise, China is not a “finished” country, like Japan in the 1990s. Although extreme poverty has been eliminated, there are improvements pending for hundreds of millions.
That said, although apartment prices fell again by a tenth in 2023, half as many were sold as in 2019 and new construction also fell by half. But Beijing sees in this a readjustment of supply and demand, framed in a general slowdown, which affects it.
China grew 5.2% last year, which stands up to comparison with the 0.5% in the EU. In 2024 it should grow a few tenths less, but it will still be responsible for a quarter of global growth. China is not finished.
