ICSM News: property giant Evergrande’s bankruptcy protection threatens not only China’s economy but could hit the UK as confidence in the world’s number two economy plummets

Pic: BBC

ICSM News: property giant Evergrande’s bankruptcy protection threatens not only China’s economy but could hit the UK as confidence in the world’s number two economy plummets

By Harry Mottram: China may be the world’s number two economy, but few economists believe the statistics published by Beijing on the one-party state’s economy. The People’s Republic of China which is run by a clique of billionaire businessmen consistently manipulates the stats to give a rosier picture of the so-called socialist market economy. Some say it is due to their innate inferiority complex compared to the modern Western economies or those of democratic Japan, Taiwan and South Korea. The problem is due to the political structure of a one-party state run on fear. Regional managers manipulate growth figures to ingratiate themselves with Beijing and to attract more funding while their equivalents in central and regional government do the same so as improve their promotion prospects with President Xi Jinping and the Marxist–Leninist Chinese Communist Government.

It is one reason why there is considerable scepticism over the way the two giants of China’s property market – Country Gardens and Evergrande – have been allowed to continue trading when they are clearly insolvent. This week Evergrande has filed for Chapter 15 bankruptcy protection in the USA as it staggers from one default to another. The property empire has liabilities close to £300 billion pounds making a loss of £62 billion pounds in the last 24 months. With millions of Chinese citizens losing their investments with Evergrande and Country Gardens there is widespread anger with the firms and the Government which is ruthlessly suppressed by evident below the surface. The calamity is how Beijing has allowed the situation to reach crisis point. Confidence in internal investment in the country has been dented, the Chinese economy is in trouble with deflation and rising unemployment and it all comes at a time when property investment, home sales and new construction have contracted for more than a year.

Reuters published this report today following the news of Evergrande’s demise: “Morgan Stanley this week followed some of the major global brokerages to cut China's growth forecast for this year. It now sees China's gross domestic product (GDP) growing 4.7% this year, down from an earlier forecast of 5%. China is targeting 5% annual growth for this year, but an increasing number of economists are warning that it could miss the goal unless Beijing ramps up support measures to arrest the decline.

“The China economic and property woes as well as the absence of concrete stimulus steps have sent a chill through global markets. Asian shares (.MIAPJ0000PUS) were headed for a weekly loss of 2.8%, the third straight week of declines. Chinese blue-chips (.CSI300) dropped 0.5% and Hong Kong's Hang Seng Index (.HSI) slumped another 1.3%.”

Contagion as we know spreads quickly in the interconnected world and it will almost certainly have a knock-on effect in the UK as investors will be more wary of Chinese owned firms, banks and investments. China has big stakes in our nuclear industry at Hinckley Point C, Heathrow Airport and a long list of private schools and properties in London. Not surprisingly the Yen is already down in value this month against the USA Dollar and GB Pound with few expecting things to improve. Currently British banks and investors are in hock to the tune of around £200 Billion Pounds in China – with opinion split on whether a complete Evergrande and Country Garden insolvency would hit the UK. The received wisdom is that it would – but the amount is open to speculation.


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