Not surprisingly, the corona pandemic is not leaving the Chinese economy unscathed. It ends flights of fancy, and the Evergrande Group is also feeling the consequences. The administration in Beijing puts the company on a leash. This seems to be quite short.
Problem real estate industry
High debt, speculation and constantly rising property prices. Against the background of falling real incomes and troubled major projects, a mix that worries Beijing. In addition, there is the interdependence of the real estate entrepreneurs. An inscrutable network of dependencies, cross-financing and favors in the billions.
Even in China, the real estate business is a backroom affair, albeit an upscale one. The Beijing administration sees a threat to the economic system and is unceremoniously pulling the 12 largest real estate developers on a leash. As Bloomberg reported, must from now on Evergrande, Sunac, China Vanke and another 9 corporations report to the central bank on the 15th of each month on their financing, liabilities and business data.
An uncomfortable situation for Evergrande and the other corporations. Evergrande in particular, the country's most heavily indebted property group, is under pressure from many sides. The Exchange plans the auto division, part of a planned liberation, apparently have little chance of success. The Shanghai Stock Exchange last week called for the company's financing to be disclosed. This seems pretty bizarre.
Negative credit rating
The background is the increasing funding from Evergrande Shadow banks. This is extremely expensive with an interest rate of up to 15% and prevents the announced reduction of liabilities. In the meantime, private investors are also holding back and are increasingly critical of total debt. Standard & Poor's has downgraded the credit rating of the China Evergrande Group to “negative”.
Regardless of this, the group is not threatened with liquidation. The company has enormous reserves in the form of building land. The talk is of 240 million square meters, Evergrande is said to be the largest private landowner in the People's Republic.
But, that is also becoming more and more obvious, the group will hardly be able to continue operating as it has before.
The central bank will particularly examine the electric car division and its gigantic investments very closely. There are options for their future. Hiring is unlikely. Too many billions have already flowed into highly modern factories and platforms. However, what has been created is still only fragmentary.
Evergrande Auto could hit the brakes. Reduced costs, stretching development times and coming onto the market later. That is possible, but with the enormously increasing pressure of competition it is neither logical nor advisable. From a purely technological point of view, today's e-car is tomorrow's museum object. The pressure to innovate is extremely high; the leaps in development are comparable to those of the computer industry in the 80s.
Anyone who comes to the market too late, oversles developments and cannot follow the trend, will be sorted out.
One possible consequence would be an early sale in parts or in full. An established Chinese competitor taking over platforms, vehicles, and modern factories is an option. With the Swedish location in the package, the offer would be attractive. The Beijing administration could formulate a corresponding suggestion in a friendly manner and steer things in the appropriate direction. It goes without saying that you do not oppose proposals of this kind, but implement them quickly.
A procedure that would not be unusual by Chinese standards.
For Evergrande, the end of many highs and the failure of ambitious car plans are looming. At the same time, however, letting go could be a liberation that would remove difficult-to-fulfill obligations and wash billions in liquidity into tight coffers.
Perhaps it would be enough to escape the trustees of the central bank and therefore an interesting option.