SinoInsight 1
Evergrande
Nov. 16
1. Evergrande New Energy Auto sells electric powertrain company e-Traction to British electric motor maker Saietta for 2 million euros (about $2.31 million).
2. Guangzhou Chiron Real Estate transferred 72 million of China Calxon Group shares (worth 1.698 billion yuan) that it owns to Shenzhen Commando Capital Management to settle the principal amount of a debt pledged to CITIC Securities. Guangzhou Chiron Real Estate is the parent company of China Evergrande.
3. Evergrande said in an internal announcement that it is abolishing the company headquarters’ regional management and supervision division. Personnel and business handled by the division will be transferred to regional Evergrande branches accordingly.
Nov. 17
Evergrande sold its remaining stake (1.662 billion shares, 18 percent) in Hengten Networks Group for HK$2.13 billion. The sale price represented a discount of about 24.26 percent to the last closet that day.
Nov. 18
Evergrande Henan announced that construction of more than 16 of its projects has resumed.
Nov. 19
Evergrande Pearl River Delta announced the resumption of construction of 63 projects in 15 regions, including Guangzhou, Foshan, Zhaoqing, Yangjiang, Qingyuan, Huizhou, and Heyuan. Evergrande Shenzhen also announced that 10 of its projects in Shenzhen, Dongguan, Jiangmen, Shanwei, Zhuhai, and Zhongshan “have fully resumed work and production.”
Nov. 20
According to information circulating on Chinese social media, construction on an Evergrande project in Taiyuan City (恆大金碧天下三期) valued at 427 million yuan was suspended that day after the company defaulted on a payment to a contractor. Early on Nov. 3, another Evergrande project in Weinan City (恆大珺睿府二期) valued at 410 million yuan was suspended over payment defaults.
Nov. 22
Deutsche Bundesbank noted in its monthly report for November that the Evergrande crisis is affecting the entire Chinese housing market. Also, a simulation shows that the crisis in the Chinese housing market will affect German exports and translate into a 0.6 percent drop in GDP.
Nov. 23
Chinese Estates Holdings announced a planned liquidation of its Evergrande shares (751 million shares) either in one go or in a series of transactions “depending on the market situation,” between Sept. 23, 2021 and Sept. 22, 2022. Chinese Estates bought 860 million Evergrande shares between 2017 and 2018 at HK$13.596 billion at the average cost of HK$15.80 per share. The company is expected to lose HK$10.558 billion if it sells its Evergrande shares at HK$2.78 per share.
Joseph Lau, the former chairman of Chinese Estates, an Evergrande shareholder, and a self-proclaimed “big fan” of Evergrande chairman Hui Ka Yan, jointly owns shares in Chinese Estates with his wife.
Nov. 26
The Hong Kong Stock Exchange filings show that Hui Ka Yan sold 1.2 billion Evergrande shares for HK$2.676 billion on Nov. 25, lowering Hui’s stake in the company from 76.96 percent to 67.87 percent. According to mainland media, the funds Hui secured from the sale will be used for the company’s bailout.
Yicai Global previously reported on Nov. 16 that Hui has been raising funds through the sale of personal assets or pledged shares since July 1, and has injected over 7 billion yuan into Evergrande to maintain basic operations.
2. According to Reuters, a government body has taken over Evergrande’s Guangzhou Evergrande Football Stadium with a view to selling it, citing a person with direct knowledge of the matter. If there are no buyers, the authorities plan to sell the stadium or acquire it via the state-owned Guangzhou City Construction Investment Group.
3. Evergrande Auto announced that the company returned 2.6633 million square meters of undeveloped land meant for residential housing and industrial use, and got back 1.284 billion yuan.
Debt rollovers and defaults
Nov. 22
China Aoyuan Real Estate announced that a private placement asset-backed security (中山證券—奧創二期資產支持專項計劃展期方案) issued by its indirect subsidiary Aoyuan Group has been approved. The 816 million yuan ABS has an initial coupon rate of 5.6 percent and matures on May 20, 2022.
China Aoyuan Real Estate was ranked 25th in the “2020 China Top 100 Real Estate Enterprise” list.
Nov. 23
Beijing Hongkun Weiye Real Estate Development (henceforth Hongkun Real Estate), a top 100 real estate enterprise in China, announced that it was temporarily suspending the trading of three bonds (“18 Hongkun 01,” “18 Hongkun 03,” and “19 Hongkun 01”) due to “matters that caused significant uncertainty to bond transactions.” Two days later, Hongkun Real Estate announced that the three bonds will resume trading on Nov. 29, 2021; the announcement added that bondholders of “19 Hongkun 01” had agreed to an extension of payments.
Hongkun Real Estate’s 343.7 million yuan “19 Hongkun 01” bond is a four-year bond issued in 2019 with resale options for buyers at the end of the second and third year. Mainland media reported that Hongkun Real Estate could not pay out 318 million yuan on Nov. 22, 2021 when bond buyers opted to exercise the second year resale option, hence leading to the temporary suspension of trading and bondholders agreeing to a payment extension. Meanwhile, the bonds “18 Hongkun 01” and “18 Hongkun 03” (576 million yuan in total value) will mature on Oct. 12, 2022 and Dec. 18, 2022 respectively.
A real estate analyst told mainland media, “The fact that most creditors chose to resell the bond shows that they do not see good prospects for Hongkun Real Estate. Also, the extension of ‘19 Hongkun 01’ confirms that the company was not able to make payment in time.” Real estate industry insiders believe that Hongkun Real Estate will opt to rollover its bonds due to liquidity problems, an issue facing other real estate companies who have failed to make timely payments.
Nov. 25
Chinese real estate developer Fantasia Holdings announced that a winding-up petition was filed against Fantasia Investment Holdings Company Limited on Nov. 24 in connection with loan facilities of alleged outstanding principal amount of US$149 million in which Fantasia Investment was the guarantor. Based in Hong Kong, Fantasia Investment is a major subsidiary of Fantasia Holdings.
Background: In November, Fantasia filed motions to defer interest payments on five RMB corporate bonds, but only one motion was passed on Nov. 24.
Fantasia previously defaulted on about $206 million of U.S. dollar bonds in October. The company’s 11 dollar bonds worth $3.069 billion account for 60 percent of its total public bonds; these bonds have high interest rates, with one at 15 percent, seven at above 10 percent, and three below 8 percent. From June 2021 onwards, Fantasia’s debt maturing in a year will reach 19.464 billion yuan, accounting for 35.81 percent of its total debt. Observers believe that there is a high probability that Fantasia will default on its debt in the future.
2. China Fortune Land Development announced the suspension of trading of one of its corporate bonds that was issued in 2019 (“19 Huaxia 01”). The 1 billion yuan, 5-year bond has a coupon rate of 5.5 percent.
China Fortune Land debt crisis first emerged this February. The company has to make payment on debt of over 100 billion yuan this year.
Financing
Nov. 20
According to a Yicai Global report, the main branch of a Chinese bank recently ordered its other branches to open up credit lines to state-owned real estate enterprises and provide special policy support. The bank main branch also issued a financing “white list” which includes Poly Real Estate, China Overseas Enterprise Development Group, China Jinmao, Sino-Ocean Group, ArChina, Beijing Capital Group, PowerChina Real Estate Group, Huayuan Group, Greenland Holdings, Gemdale Corporation, Overseas Chinese Town Enterprises, CR Land, as well as other “high-quality, local state-owned real estate companies” that meet the main branch’s requirements.
Yicai also noted that a number of banking industry sources were not notified of such an order.
Nov. 22
1. According to incomplete statistics compiled by mainland media, 28 Chinese real estate companies and urban investment enterprises announced that they would be securing 34.82 billion yuan in funding through bond sales in the interbank market from Nov. 1 to Nov. 17. The 28 companies include China Merchants Shekou Industrial Zone Holdings, Poly Real Estate, Gemdale Corporation, Shanghai Construction Group, and Beijing Properties (Holdings).
State-owned enterprises form the bulk of companies issuing bonds, and these firms have relatively high entity ratings and bond ratings. Bond prospectuses of the aforementioned companies indicate that the funds that they raise will be mostly used for debt repayment, according to mainland media.
2. Song Yanqing, president of Lander Consulting and deputy secretary-general of the China Housing Association Management Committee (中房协经营管理委员会), told mainland media that some private real estate companies are seeing tight cash flow this year due to stricter government lending regulations and the Evergrande crisis. Song added that some private real estate firms are looking to “marry” (merge) state-owned enterprises (as a way out of their problem), while some SOEs are also looking to indirectly acquire private enterprises. While some SOEs are not on par with the private companies they are looking to acquire, they have advantages in securing financing that the latter lacks.
Song Yanqing believes that “reliance on land financing is high everywhere,” and SOEs are unable to support the demand. Also, the “probability of private housing enterprises withdrawing from the housing market is unlikely.”
3. The easing of financing restrictions for the real estate sector led to the picking up of property bond prices. Trading of bonds issued by companies like Shimao Property, China Aoyuan Group, Yuzhou Group were halted after sharp rises; companies like Sunshine City Group saw their bonds rise by over 20 percent. In total, 73 Chinese real estate dollar bonds went up by more than 5 percent.
4. Poly Development Holdings Group announced that it intends to issue up to 9.8 billion yuan worth of corporate bonds.
5. China Overseas Land and Investment announced that its wholly-owned subsidiary China Overseas Enterprise Development Group intends to issue domestic RMB bonds not exceeding 5 billion yuan.
6. Yicai Global reported that the financing environment for the real estate sector is picking up:
- Real estate companies are accelerating their issuance of interbank bonds. According to Wind, the planned bond issuance scale of real estate enterprises for the month as of Nov. 21 was 29.670 billion yuan, significantly exceeding the total domestic bond issuance of real estate companies in October.
- The scale of home mortgage loan asset securitization products (RMBS) has gone up. Data from Wind shows that the scale of RMBS issued and to be issued in November was 81.409 billion yuan, or nearly four times that of October. Releasing RMBS helps banks free up their housing loan quota.
The China Index Academy reported that total financing of real estate enterprises for the month (as of Nov. 23) had increased 69.2 percent from a month ago to 61.75 billion yuan. Also, the scale of financing in a single month showed upward momentum after three consecutive months of decline.
Nov. 25
Kaisa Group Holdings announced that it wants to extend the maturity of a $400 million bond by 18 months. The company also noted in a filing that it would exchange its 6.5 percent offshore bonds due Dec. 7, 2021 for new notes due June 6, 2023 at the same interest rate if at least 95 percent of bondholders accept the arrangement.
Land sales
Nov. 26
The last round of land auctions in Shenzhen for the year saw the successful auction of 11 lots of land worth 36.837 billion yuan total. Of the 11 lots, seven were sold at base price while bidding for the other four lots hit the upper limit and the winner had to be determined by on-site lottery.
The bulk of the participating companies in the land auctions were headquartered in Shenzhen, with central and state-owned enterprises accounting for nearly 80 percent of the bidders. Shenzhen Metro Group paid 17.851 billion yuan for five of seven lots being sold at base price.
OUR TAKE
Still, the scale of real estate financing has shrunk noticeably this year. According to data from CRIC, single-month financing of property companies have declined year-on-year for 12 consecutive months. In October 2021, the total financing of 100 typical real estate enterprises hit a new record low of 36.735 billion yuan, down 54.5 percent from the previous month and 71.3 percent from a year ago. Additionally, real estate enterprises are seeing the near suspension of overseas debt financing activity, with companies only securing 9.904 billion yuan in October, down 61.5 percent month-on-month and 76.8 percent year-on-year.
Beike Research Institute data showed 31 domestic and overseas debt financing items with an issue size of 30.4 billion yuan for the month of October, down 55.9 percent month-on-month and 56.1 percent year-on-year. Cumulative domestic and overseas debt financing of real estate companies from January to October 2021 was 799.3 billion yuan, down 24 percent from the same period in 2020.
Real estate loans have also continued to slow this year. According to data from the People’s Bank of China, the balance of RMB property loans at the end of the third quarter of 2021 went up 7.6 percent from a year ago to 51.4 trillion yuan, but lagged behind the growth rate of other types of loans. The balance of real estate development loans was 12.16 trillion yuan, up 0.02 percent year-on-year and with a 2.8 percent lower growth rate as compared to the end of the second quarter of 2021. Meanwhile, the balance of real estate development loans at the end of the second quarter was 12.3 trillion yuan, up 2.8 percent year-on-year, but 3.3 percent lower than the figure at the end of 2020.
2. The CCP’s relaxing of real estate sector financing restrictions and bond extensions to companies appear to have somewhat lifted the spreading gloominess in the industry, despite the bulk of financing going to central-owned or state-owned enterprises. Having easier access to funding allows central-owned or state-owned enterprises to buy land and acquire debt-ridden private real estate enterprises, a development that partially alleviates China’s real estate woes. However, the overall financing outlook for real estate enterprises is still looking pessimistic, with a great likelihood of more debt defaults in the days ahead.
China Index Academy statistics show that Chinese real estate companies are due to pay 356 billion yuan in maturing debt in 2022, of which over 98 billion yuan is due in the first and second quarter. While some foreign financial institutions have increased their positions in Chinese real estate debt, the general mood is one of caution.
3. The winding-up petition filed against Fantasia Investment is both a symptom of spreading financial contagion and a political signal about the strength of Jiang faction number two Zeng Qinghong. It seems rather odd that Fantasia, which was founded by Zeng’s niece Zeng Jie, was not able to rollover its debt like other real estate companies despite having influential political ties.
In the context of escalating factional struggle in the CCP elite, it cannot be ruled out that Zeng Qinghong and the Jiang faction’s political influence is currently being fiercely challenged, with Fantasia’s troubles reflecting factional fighting. The Jiang faction’s “quan wei” will suffer a blow if the winding-up petition is successful, and CCP officials who are still “standing on the sidelines” as they await clarity in the Xi-Jiang factional struggle could be more willing to throw in their lot with the Xi camp.
SinoInsight 2
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Yuan Hongbing, a prominent Chinese dissident and jurist based in Australia, provided Vision Times with details he obtained from a “member of the former CCP nouveau riche” (中共的原來新權貴家族, or a Party elite of the Jiang faction’s era of dominance) about the Party elite politics behind the Peng Shuai-Zhang Gaoli in an interview published on Nov. 25.
Yuan said that Peng Shuai’s sexual assault allegation against Zhang Gaoli is genuine, but her public accusation via a Nov. 2 Weibo post is of “political design.” Yuan then rehashed what he had said in an earlier interview about how the Xi Jinping camp’s effort to repudiate Jiang Zemin and the faction named after him in Xi’s “historical resolution” was foiled by Jiang faction member Zhang Gaoli. During the drafting and feedback phase of Xi’s resolution, Zhang worked “in tandem” with other former Politburo and Politburo Standing Committee members (with the exception of Xi ally Hu Jintao) to have Xi exclude criticism of Jiang; the retired Party elites were concerned that allowing criticism Jiang would leave them next in line for endless criticism. Yuan added that CCP propaganda’s reference to “iron-cap prince” (鐵帽子王) before the Sixth Plenum of the 19th Central Committee was meant to be a “severe warning” to Zhang Gaoli and those who opposed censuring Jiang Zemin in Xi’s “historical resolution,” as well as the Xi camp laying the foundation for future public criticism of Jiang.
Yuan Hongbing said that the Xi camp also intended to use Peng Shuai’s #MeToo accusation to put Zhang Gaoli on notice, and PRC public security minister Zhao Kezhi had “arranged” for Peng’s Nov. 2 Weibo post to be sent out. However, Xi Jinping “did not expect” the intense international attention and furor towards the CCP over Peng Shuai; international backlash over Peng is also threatening the CCP’s hosting of a “celebratory” Winter Olympics in Beijing next year.
In doing his own analysis, Yuan believes that Zhao Kezhi acted to “avenge” his political patron Hu Jintao through “arranging” the Peng Shuai “#MeToo incident. However, Zhao’s machinations “failed,” and his stepping down as Party secretary of the Ministry of Public Security recently is linked with his role in the Peng Shuai case. Yuan also believes that Zhao will have to “take responsibility” for the CCP’s international setback.
OUR TAKE
1. If the information provided by Yuan Hongbing’s Party source is accurate, then the Peng Shuai-Zhang Gaoli scandal is the result of fierce factional fighting in the CCP elite as per the second or third scenarios that we laid out in our initial analysis of the incident. To briefly recap, we noted that Peng Shuai would not dare to risk making a public accusation of sexual assault against a high-ranking elite cadre like Zhang Gaoli without sufficient political backing. Also, her Weibo post would not have “cleared” the censors unless Xi camp deliberately allowed it to happen given the sensitive words it contained and the politically sensitive period in which it was published.
If the Xi camp is indeed supporting Peng Shuai’s #MeToo allegation, then she is unlikely to be in any real danger despite her “disappearance.” In fact, her three-week “disappearance” could be part of the Xi camp’s plan all along; we noted earlier that Peng “could still be temporarily ‘disappeared’ if there is a need to keep up pretenses.”
The factional struggle aspect of the Peng Shuai-Zhang Gaoli incident also provides alternative readings of the political messaging in one of the photos that emerged in public after the international community began asking about her safety. Observers believe that an image of Peng featuring a picture of what appears to be her and Winnie the Pooh on the dresser behind her is a coded “distress signal” that she is being held hostage by Xi Jinping and/or is secretly anti-CCP. This reading appears to make sense if we only consider that Xi is compared with the Pooh bear to the point where the CCP bans or censors the cartoon character. However, observers have not adequately accounted for why the CCP censors “allowed” Peng Shuai to get in further trouble by “releasing” a photo of herself featuring the highly politically sensitive Pooh.
In considering the factional struggle angle, it is possible that the picture of Peng and Pooh is meant to signal to the Party elite that Xi is “behind” Peng, especially if it is a new photo taken for the express purpose of proving Peng’s “safety.” Therefore, those who attempt to use the Peng Shuai incident against the Xi leadership should be forewarned. But if the photo is really an old picture being passed off as a “recent” one, then it might not contain any specific political messaging; after all, the Peng and Pooh picture is blurry and in the background, and the censors might not think that it is obvious enough to pose a problem.
2. Based on our assessment, we believe that it is possible that Zhao Kezhi was the one who “arranged” for Peng Shuai’s #MeToo accusation to get public attention. However, we disagree with Yuan Hongbing’s analysis of Zhao’s factional network and fate.
An analysis of Zhao Kezhi’s political career indicates that he is a Xi Jinping ally, and not a political client of Hu Jintao. Zhao climbed the official ranks during the Hu years followed standard progression with no “rocket” promotions. Zhao’s provincial appointments under Hu were also unimpressive; unlike Hu’s protégés Wang Yang and Hu Chunhua, both of whom headed Guangdong Province (a prestigious appointment), Zhao only served as deputy Party secretary and governor of Guizhou (a “backwater” province with limited prospects) in the final years of the Hu leadership (August 2010 – July 2012).
Zhao Kezhi’s career only took off after Xi Jinping took office, and likely due to his connection with longtime Xi ally Li Zhanshu. Li was Zhao’s close colleague while they were in Guizhou, and Li would have had the opportunity to recommend Zhao to Xi after he moved up to the CCP General Office in 2012. Zhao’s name would have came up when Xi started looking for trustworthy officials to replace purged Jiang faction members in the provinces and the central government; in 2015, Zhao replaced the Jiang faction member Zhou Benshun as Hebei Party boss after the latter was purged, and was trusted enough by Xi to be appointed to the crucial position of public security minister before the 19th Party Congress in 2017.
Trust and political connections, however, can only go so far if political advantages are to be consolidated in factional struggle. Being a complete “outsider” who was “parachuted” into the public security apparatus, Zhao Kezhi would have struggled to “rectify” the apparatus per Xi’s requirements and ensure that public security officials properly implemented Xi’s orders. It is thus unsurprising that Xi opted to replace Zhao with Wang Xiaohong, a career public security official and another Xi ally, as he looks to tighten his grip on the Party’s “knife handle” ahead of the crucial 20th Party Congress in 2022. Xi is expected to formally make a bid for a norm-breaking third term at the upcoming Party Congress, and would want greater control over domestic security to improve his bid’s chances of success given that he continues to face substantial resistance from the Party elite, as Yuan Hongbing’s Party sources indicate.
Zhao Kezhi being replaced by Wang Xiaohong could also indeed be a consequence of his involvement in the Peng Shuai-Zhang Gaoli affair, as Yuan Hongbing analyzes. However, we do not believe that Zhao’s political career is over. Rather, Xi could simply be allowing politics to run its course while using its “momentum” (順水推舟) to replace an ally with an even more suitable ally in a critical regime apparatus in preparation for further offensives as factional struggle intensifies. Meanwhile, Zhao could still be appointed to a vice chairman position in the National People’s Congress or the Chinese People’s Political Consultative Conference at a later date as Xi looks to retain allies in key positions; such an appointment would be analogous to the “surprise” personnel arrangement at the 19th Party Congress that saw Wang Qishan seemingly “exit” CCP elite politics by leaving the Politburo Standing Committee and Central Committee only to make a “comeback” several months later as PRC vice president with unlimited tenure and an unofficial “eighth” member of the Politburo Standing Committee.
3. Mounting international pressure on Xi Jinping and the CCP over Peng Shuai could serve as a catalyst in bringing the Xi-Jiang factional struggle to a showdown.
Xi cannot afford to lose too much “quan wei” in the run-up to the 20th Party Congress, and will be looking to gain more prestige and authority if possible. Having a successful, “celebratory” 2022 Beijing Winter Olympics would add to Xi’s luster; in contrast, Peng Shuai-related boycotts (even largely symbolic “diplomatic boycotts”) of the Winter Olympics would be a black mark against his leadership.
Xi’s domestic and international opponents could attempt to leverage the international outroar and #MeToo movement to tarnish Xi and the CCP’s “great, glorious, correct” image before the Olympics. Meanwhile, Xi will look to dispel international concerns about Peng Shuai and step up efforts to ensure that the Peng-Zhang case does not affect the Olympics too much or the CCP’s image. Whether or not Xi decides to show his hand and move against Zhang Gaoli and the Jiang faction depends on political necessity, especially whether he chooses to prioritize the immediate interests of the Communist Party, or his own long-term survival.
