The Chinese Government Will Take Everything from You

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The Chinese Communist Party (CCP) repeated its attempt to rein in the country’s debt-ridden real estate industry after two big Chinese real estate developers, Evergrande and Kaisa, failed on their loan repayments.

Experts think, however, the CCP plans to turn private businesses into state-owned companies in order to strengthen state control.


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Nationalization!

On Dec. 10, during China’s yearly Central Economic Work Event (a significant meeting when regime leaders drew out economic plans for 2022), the real estate sector was one of the hot subjects discussed.

Ning Jizhe, deputy head of China’s National Development and Reform Commission, stressed the importance of reforming the country’s debt-ridden real estate sector, which he described as a major economic pillar.

Chinese real estate titans such as Evergrande, Fantasia, and Kaisa have been in debt since the start of 2021. China’s “Three Red Lines Policy” compounded the issue.

The three red lines represent a set of debt levels that significantly limit some real estate builders’ creditworthiness.

The Three Red Lines Policy was announced by the People’s Bank of China and the Ministry of Housing in August 2020.

It came with the goal of strengthening the financial health of the real estate sector by reducing developer leverage, enhancing loan coverage, and raising liquidity. Some large property developers, including Evergrande, have, nevertheless, failed to comply with the new regulations.


The fundamental reason for Evergrande’s demise, according to Chinese economist Huang Jun, was state-owned banks ceased funding because Evergrande issued bonds with extremely high-interest rates it couldn’t repay.

Huang Jun is a member of the Asian Real Estate Association’s (ASEA) research department and the China Enterprise Capital Alliance’s (CECU) chief economist. He is now based in the United States.

“Beijing very certainly played a hand in Evergrande’s demise,” Huang said. “China’s private real estate enterprises increased in size since the housing reform in 1998. The CCP, on the other hand, aims to reclaim power by turning private businesses into state-owned businesses.”

This is How It Works Under Communism

“The state companies advance, the private sector retreats,” Huang said, referring to the CCP’s long-standing economic doctrine, which suppresses the free market economy and strengthens state intervention.

Since the early 2000s, the CCP pushed for state-owned companies to have greater clout at the expense of the private sector.

According to the Financial Times, the Evergrande Group organized a seven-seat risk management council on Dec. 6 that comprised four state entity officials. The decision amounted to the government getting involved in Evergrande’s debt relief.

“The [committee] would take over Evergrande and recruit third parties, particularly state-owned builders, to carry over its infrastructure projects,” Chen Long, a Beijing-based consultant, said.

“Evergrande is finished after that. Original shareholders will be wiped out, including [its founder and chairman] Xu Jiayin.”

“Over the last three to four years, this is how Beijing has managed extremely indebted enterprises,” Chen continued.


“They had several opportunities to save Evergrande. They still have a chance to save Evergrande today. However, no one is motivated by political considerations to do so.”