China’s property sector is not out of the woods, and even though Evergrande has fallen from the top of the headline charts, the problems seem to be slowly but surely deepening. With what consequences, who can say, but given the central importance of the property market to the economy, they are potentially not insignificant. The top news this week was that the massively-indebted property developer Evergrande had been ordered to demolish 39 apartment blocks on the southern island of Hainan. The Shimao Group, another property developer, defaulted on a debt repayment and Guangzhou R&F Properties warned the market that it may be unable to make a payment due next week. The Center has at least delayed and partially defused the Evergrande crisis by dividing up responsibility for sorting things out to the local level with local governments responsible for finding solutions to projects in their area. But the debt overhang is still there.
The stock market has also taken a beating in the past two weeks, highlighting the perception of general gloomy prospects for the Chinese economy due to economic slowdown, COVID-zero policy fallout and a host of other factors. But what always has to be kept in mind is the amazing ability of the Center to manage both expectations and fallout due to their control of all buttons and levers in the economy. Whether tectonic plate movements and brick walls would ever eventually create an unavoidable consequence for all that fine-tuning—well, that’s the question, isn’t it, and in terms of triggers and timing and possibilities, all guesses are valid.
The current COVID outbreak, with Xi’an as the epicenter, is the most serious yet in China, and while the numbers of cases are verging on inconsequential compared to other countries, especially the US, it has become a measure of the effectiveness and degree of control the Center can maintain. And also arguably increasingly essential, given that China is now the furthest behind of any major society in terms of the development of herd immunity.
Have a great weekend ahead.