- Rescue or restructure for Evergrande?
- Hong Kong’s resistance forms in exile
- Xi and Biden plan video meeting before end of year
- Carrie Lam: Expansion of Hong Kong’s north
- Travel volume down during Golden Week
- Taliban and Beijing cooperate on Afghan border
- Tibet lobby demands stronger line from future German government
- Schedule of the AsiaBerlin Summit on Thursday
- Profile: Daimler CIO Joerg Storm
At an informal dinner of the EU heads of state and government in the Slovenian castle of Brdo, the relationship with China was also on the agenda, albeit a minor topic at the end. Attention is now being drawn to a detail in EU Council President Charles Michel’s communiqué on the meeting. China is considered a “competitor, partner and systemic rival”, the Belgian remarked. Anyone familiar with the EU’s triad for positioning itself towards the People’s Republic will notice: Until now, the order was “partner, competitor, systemic rival”. Now, “competitor” seems to have moved to the front.
In our first analysis of today’s issue, we once again take a look at the drama surrounding indebted real estate giant Evergrande. How will Beijing react? Finn Mayer-Kuckuk explains that the response to other companies that have fallen into the red has varied so far. Huachen Automotive was forced into bankruptcy. Bank Huarong, on the other hand, was rescued. But this is about more than a mere decision over rescue or restructuring. Evergrande’s case displays Beijing’s strategy towards risks in the financial market.
Meanwhile, the treatment of civil society organizations in Hong Kong is painfully predictable: Trade unionists, activists, and media representatives in the city fear prosecution by the authorities – hence why resistance is beginning to move overseas, writes Marcel Grzanna. He spoke to ex-parliamentarian Ted Hui.
I hope you enjoy our latest issue!
Amelie Richter
Feature
Evergrande: How much risk is Beijing willing to accept in its financial market?
No one can say that China is casting too wide a safety net in the crisis. In the first half of the year alone, dozens of large companies went bankrupt, leaving a combined €15 billion of debt. So the financial regulator and the central bank are certainly showing the strength to go bust. In a state economy, the government has the ability to rescue just about anything that runs into trouble. But it is holding back on interventions.
At the same time, however, the slow demise of real estate developer Evergrande has observers and market participants puzzled. How much actual risk does Beijing dare to take? On the one hand, China’s CP has repeatedly announced its intention to increasingly rely on market forces in the financial sector. “We will speed up the development of a multilevel capital market,” Premier Li Keqiang said in 2014, “and develop a well-regulated bond market.” On the one hand, a well-functioning bond market also requires real default risks. But too much depends on the fate of the Evergrande Group. From simple homebuyers to major banks, a wide variety of players are involved. In addition, there are systemic risks in China’s over-indebted real estate sector. Other companies in the sector are already having a hard time restructuring their bonds.
Beijing thus faces a dilemma between maintaining the stability it prides itself on and creating a functioning bond market. In a self-sustaining capital market, however, investors must also share the risks of large institutions. The leadership is aware of this, and so it is quite willing to let market forces prevail and give investors the benefit of the doubt if they have made the wrong bet.
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