Saturday, October 23, 2021

Beijing directs state-backed firms to buy Evergrande assets

Chinese authorities are pressuring government-owned firms and state-backed property developers to acquire some of the Evergrande Group properties in a bid to lessen the potentially disastrous effects of the failed real estate giant.

Shengjing Financial Holding Investment Group, a subsidiary of the State-owned Asset Supervision and Administration Commission of the Shenyang People’s Government (Shenyang SASAC), bought Evergrande Nanchang’s shares in Shengjing Bank twice on August 17 and September 28.

In a second purchase, the asset management group bought 19.93 percent of Evergrande Nanchang’s shares in Shengjing Bank at 5.7 yuan ($0.88) per share. In addition, Evergrande’s proceeds from the sale, amounting to 99.93 billion yuan ($1.5 billion), can only be used to repay its loans to Shengjing Bank.

Evergrande announced on September 29 that Shenyang SASAC owns 58.33 percent of shares in Shengjing Financial Holdings; Shenyang Municipal Finance Bureau holds a 30.74 percent stake; Shenyang City Construction Investment Group holds a 6.25 percent stake; and a 5.04 percent stake in the Liaoning Provincial Finance Bureau.

In a September 29 announcement, Shengjing Bank said that, after Shenyang SASAC took over the shares held twice by Evergrande Nanchang, Shengjing Financial Holdings now holds 20.79 percent of the total issued shares, becoming its largest shareholder. In addition, Shenyang SASAC-backed entities hold a combined 29.54 percent of its total shares. At the same time, shares of Evergrande Nanchang fell to 14.57 percent.

In addition to reflecting improved shareholder credibility following the transfer, the bank’s announcement also announced that it would strengthen its adherence to the Communist Party of China (CCP).

On 28 September, Chinese state media said Beijing had instructed local governments to handle Evergrande’s debt crisis in an interview with an insider working at the regulatory agency on construction in an undisclosed province. Central authorities proposed that “whoever is the parent should receive their child,” meaning that Evergrande’s problems in various sectors—unfinished projects, loans to suppliers, and loans to investors—are dealt with by local governments. should go. The priority is to complete the unfinished constructions of Evergrande, to address the concerns of home buyers.

This kind of solution, “whoever is the parent must take their child” to address complex issues, has been adopted before. In 2016, when the CCP’s State Council dealt with Internet financial problems, it produced a set of reform plans based on this method.

This time, Shenyang SASAC took over Evergrande’s debt in Shengjing Bank, as the bank is headquartered in Shenyang City, Liaoning Province.

Read Also:  China Evergrande's rising default risk puts focus on potential Beijing hedge

Hong Kong-based finance and economics columnist Liao Shiming shares his thoughts with The Epoch Times regarding the way local governments handle complex national issues concerning their respective regions.

“Shengjing Financial Holdings bought some equity of Evergrande, and it is probably one of the few high-quality assets for Evergrande, but Evergrande has no right to decide what to sell, how much to sell and how It is very likely that Evergrande will split in the process,” Liao said in an interview on September 30.

He believes that Beijing’s main concern is social stability, as the fall of Evergrande involved many victims. “The CCP asks local governments to handle the problems posed by Evergrande to avoid social unrest,” Liao said. “How the local governments will deal with these problems, the central authorities do not care. Many outsiders think the CCP will try to help save Evergrande and pay off her debt. This is not true, as can be seen from the CCP’s ‘each parent takes his own child’ policy.”

In early 2015, the current director of the Foreign Exchange Administration’s Foreign Exchange Research Center, Ding Zijie, pointed out that a policy of “each parent takes his own child” would only worsen financial problems.

“The logic was still the planned economy … and it is ‘mission impossible’ for the local authorities,” he said.

In today’s China, not many local governments are in a position to “pick up your child” like Shenyang.

Sober Observer, a well-known financial Youtuber, has emphasized in his program that due to repeated government regulations and the cooling of the real estate market, many local governments relying on real estate as their main income are suffering from the economic cold. Most of them won’t be able to solve Evergrande’s massive debt problem. It is already very difficult for them to deal with their local debts.

In addition, Sober Observer noted that many other Chinese real estate companies are in deep debt, hundreds of them, such as Country Garden and Greenland. They have debts ranging from hundreds of billions to trillions of yuan. These companies are eagerly waiting for the officials to come to the rescue. But where is the money to save them, he asked.

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This News Originally From – The Epoch Times

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