SinoInsight 1
According to announcements issued by Chinese listed company Haima Automobile on April 23 and May 15, the company is putting up a total of 401 properties in Shanghai and Haikou City for sale. Mainland media outlets report that the properties which Haima is putting up for sale were originally valued at about 52 million yuan, but are now worth nearly 354 million yuan (about 7 times higher).
Haima has posted losses for two consecutive years, and faces delisting if it suffers losses this year.
OUR TAKE
1. Haima Automobile is clearly selling its properties to avoid being delisted.
According to Haima’s 2018 annual report, automobile manufacturing accounts for 93.26 percent of total company revenue but only 6.34 percent of gross profit. In comparison, automobile manufacturing profits are less than 1 percent of the profits generated from property sales. Haima’s current property holdings are estimated to have an original value of about 259 million yuan.
Many Chinese public companies have taken to selling property to become profitable. According to chinadatapay.com (a media group under the state-run Securities Times), listed companies in China sold more property in 2018 as compared to 2017. Between January to Dec. 6 last year, Chinese public companies issued 52 property sale announcements, or more than the 45 announcements issued in 2017.
The case of Haima is an example of how the financialization of the property market in China has severely impacted that real economy.
2. According to a public company investment list compiled by chinadatapay.com and the China Listed Company Development Center, the top ten listed companies own properties worth nearly 400 billion yuan. Last year, the top ten companies made over 10 billion yuan from property speculation. Meanwhile, Chinese public companies invested 1.1 trillion yuan in property in the third quarter of 2018 alone.
3. In our 2019 China outlook, we wrote that “Chinese companies may start selling off their property assets to pay off debt.” The Haima case confirms that this trend is ongoing. With the escalation of the Sino-U.S. trade war, this trend may become more prevalent and serious, and is the last thing that the CCP authorities want to see.
Presently, the market value of property in China is estimated at around $65 trillion, or a sum greater than all the property in the U.S., Europe, and Japan. Further, China’s foreign exchange reserves are less than $3.1 trillion, or 4.77 percent of the property market. In theory, the sale of just 5 percent of property in China and the conversion of the proceeds into U.S. dollars could see an emptying of the foreign exchange reserves and a collapse in housing prices.
SinoInsight 2
Starting from May 16, state broadcaster CCTV has been airing movies about the Korean War or confrontations between the PRC and America on its movie channel (CCTV 6) instead of the films that were originally scheduled to play.
On May 19, the General Office of the CCP and the State Council issued a notice on commemorating the 70th anniversary of the founding of the People’s Republic of China. As part of the commemoration push, educational campaigns with the theme “Me and My Motherland” would be held for the masses. Also, local governments are encouraged to vigorously promote “patriotism” and “rally around the Party Central with Comrade Xi Jinping at the core.”
OUR TAKE
1. We believe that the Sino-U.S. trade war and China’s worsening economy have created unprecedented dangers for the Chinese regime. Thus, the CCP is turning to standard population control measures like mass indoctrination, inciting hatred, and other forms of societal control.
2. While Xi Jinping faces stiff pushback from political rivals, we believe that he is not in any immediate danger of being replaced at the helm due to a lack of available candidates. Hence, the CCP continues to promote “core” leader Xi to preserve the regime’s political authority.
