China’s Real Estate Crisis Has No Easy Fix—Just Ask Chinese Soccer Fans, mentions a Time news source.
Ignominy comes quickly in China
Just a few years ago, Evergrande Group was the pride of the nation. The real estate giant was for a time China’s biggest constructor with more than 1,300 projects in 280 cities to date. And through sport, specifically soccer, it became the poster child for a new era of Chinese dominance. Guangzhou Evergrande soccer club won eight Chinese Super League (CSL) titles, including seven back-to-back between 2011 and 2017, as well as two Asian Champions Leagues, thanks to a galaxy of handsomely remunerated European and Latin American stars. It also ran the world’s biggest soccer school, whose “goal is to revitalize Chinese soccer and cultivate soccer stars, not only for the Evergrande group, but also for our country,” principal Liu Jiangnan told TIME in his office in 2016.
Back then, investment in soccer was smart politically. In 2015, Chinese President Xi Jinping unveiled a 50-point reform plan to develop grassroots soccer with the aim of China hosting and ultimately winning the World Cup. Evergrande even paid the bulk of former Italy manager Marcello Lippi’s salary as China coach from 2016 to 2019. In April 2020, Evergrande broke ground in Guangzhou on a new $1.8 billion, state-of-the-art 100,000-capacity stadium, which would be “a world-class new landmark comparable to the Sydney Opera House and Dubai Burj Khalifa,” Chairman Xu Jiayin told reporters.
Evergrande filed for bankruptcy protection in the U.S.
In August, Evergrande filed for bankruptcy protection in the U.S. and last week Xu was arrested in China on suspicion of “illegal crimes” related to his firm’s precipitous collapse. Since a high in July 2020, the shares of Evergrande—the world’s most indebted developer—have plummeted 99%, wiping out almost $47 billion in market value, owing to a housing slump and regulator crackdown on excessive liabilities. Xu remains under investigation at an undisclosed location. That half-completed “landmark” stadium, meanwhile, has been seized by the local government toward servicing the firm’s estimated $300 billion of debt.
Evergrande’s global profile, owing in large part to its all-conquering soccer team, has only amplified China’s dire economic woes to the world. Meanwhile, the recent high-profile purge of top-ranking officials, bankers and generals has decimated the confidence of investors already reeling from the punitive investigations of consulting and accounting firms, bankers forced to do ideological study sessions rather than productive work, executives at foreign companies barred from leaving the country, and new draconian controls on exporting data. In the second quarter of the year, foreign direct investment into China was just $4.9 billion, down 94% compared with the same period in 2021, according to the Nomura financial services group.
Xu’s detention only adds to this unease, even if it was entirely predictable. Whenever a large Chinese company gets into financial trouble, the arrest of the top boss is never far behind—just look at Anbang, HNA Group, Huarong, Fosun, and many others. Sung Wen-Ti, an expert on Chinese politics at the Australian National University, says Xu’s arrest shows “cross-ministry coordination remains very much a work in progress” in China. “At the precise time when economic ministries are trying to resuscitate the real estate market by waiving a lot of requirements, more security-oriented portfolios are pursuing a high-profile target that’s likely going to make foreign investors wary.”
Evergrande’s woes leave an estimated 1.5 million customers with unfinished homes, but the problem goes much deeper. As real estate accounts for some 30% of national GDP, as well as up to 80% of household wealth, the crisis is cascading through the wider economy. China’s property developers collectively owe more than $390 billion to various suppliers, according to Gavekal Research. “We’re really only at the very beginning of the fallout of what’s happening in the property sector,” says Dinny McMahon, head of China markets research at Trivium China policy research group. “Real pain and real stress will be caused to ordinary people and firms.”
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Source: Time
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