Evergrande is today China’s largest real estate company, which started off with selling bottled water and pig farming. It also features in the Global 500, owns around 1300 residential projects, food companies, theme parks and a soccer team called the ‘Guangzhou Evergrande’. Evergrande succeeded on the growth in the Chinese real estate sector. It is a known fact that real estate and infrastructure is one of the major driving forces of Chinese economy where a large amount of household savings are invested. However, for the last year signs were not good for Evergrande as it started defaulting on payments and refocused the attention on China’s debt crisis. With the ongoing pandemic things are not appearing great for Evergrande, which is facing debt to the tune of 300 billion dollars. Evergrande crisis will affect the Chinese economy adversely which is already struggling to recover from the Covid 19 pandemic. In the words of Jimmy Chang, Chief Investment Officer at Rockefeller Global Family Office, “If China were to have a serious economic issue because of China Evergrande, the rest of the global economy would have contagion from it.”
On the surface of it the Evergrande crisis does appear to be one of debt failure and real estate collapse. It ticks all the boxes of companies expanding faster than they can manage and thus over borrowing and then failing or defaulting on payments. However, if one scratches the surface a little more, the story appears to be something larger than just about one company. It is a known fact that in 2020, Jack Ma’s Ant Group had to suspend its IPO’s worth 37 billion dollars, after Jack Ma had questioned the existing financial regulations.
For the last few years China under Xi Jinping is attempting to correct the problems in the Chinese economic system. Since its reform and opening up in the late 1970s, China has witnessed unparallel economic growth under the aegis of the ‘Socialist Market Economy’. However, it appears that getting rich (unchecked) is not welcomed or praised in China anymore. In 2021, a new role model for industrialists is being promoted. September marked the centenary of Sun Fuling, an industrialist who is credited with undertaking nationalist industries and contributing to nation building. He has been praised by Wang Yang, CCP politburo member for his contributions, underscoring the argument that a true industrialist works for the nation and is not focussed on individual growth.
The talks of such icons indicate that Xi Jinping is really concerned about the rising economic inequalities in China. He wants to see the ‘uber rich’ undertake certain qualities and help in the overall nation building; not surprising that the new term which is in use in the policy making circles today is ‘disorderly expansion of capital’. This term is being used regularly since January 2021. Does this mean that Xi is ready to ‘streamline’ or organize the expansion of capital in China?
The major call under Deng Xiaoping was ‘getting rich is glorious’, indicating that after the reforms and opening up, there was no taboo or shame in getting rich. But in the last forty years it has become increasingly obvious that China is faced with grave income inequalities; and the way the ‘socialist market economy’ works (with the Party/government playing a key role in all industrialisation and development) there is a large scope for corruption. The more networked one is, the better are the chances of getting opportunities and loans and access to the resources. Since coming to power, Xi has shown his commitment towards eradicating or reigning this train. He has undertaken several steps to curtail the rise of corruption within the Party and has shown that no one is safe. He has gone after the ‘flies’ and the ‘tigers’ with the same force. The fact that the government may not be ready to save Evergrande is another example of going after the tigers. Evergrande’s links to the Wen Jiabao family is well known and Xi does not want to appear to be appeasing any faction or anyone. Another major achievement by doing this is showing that Xi is committed towards strengthening the banking sector.
But one of the major questions which arises is about the jobs and the common man who has invested in the real estate. Also, the future of the real estate industry under Xi, which is one of the largest employers in China today becomes important to consider here. Such a crisis and the handling of it, wherein the demolition of the Evergrande properties has been all over the news and has created a visual impact, shows that Xi is ready to demolish any indication of its being supporting the ultrarich. It appears that Xi’s motto is ‘common prosperity’ with the focus on fairer society with loyalty to the Party and leadership. Such decisions also underscore Xi’s commitment to overcome the three major hurdles for common man in China today – healthcare, housing and education.
However, the major challenge will be to control the protests which may result because of the sudden collapse of Evergrande, which is one the largest employers in the country. In addition, a large number of people in China have already invested in real estate projects. There are reports suggesting that the government censorship has prevented the people from knowing the true extent of the crisis. However, it is not clear how will they prevent the people who will be getting unemployed from understanding the actual gravity of the situation. It can be said that officials can put pressure on people and push them to not make public hue and cry. But the question remains – how does this make Xi appear closer to the people?
What remains to be seen in the coming year leading up to the 20th Party Congress is what exactly is Xi Jinping’s plan of action. It is obvious that Xi is looking forward to a third term as the President. But the ongoing pandemic, slowing of the economy and the increasing income inequalities have raised questions about the direction of the Chinese economic planning and reforms. By putting pressure on the private industries and entrepreneurs, is Xi trying to send a message about the changing course of Chinese development? The debates and actions of the Chinese leadership indicate that the ‘Party’ will now dictate the levels to which one can get rich while also deciding the sectors which are acceptable. Is Xi working towards a dictum for China as to ‘how and how much one can get rich’? Such actions hint also towards an unease in the Party under Xi that the undercurrents of capitalism and eroding the basic pillar of the Chinese Communist Party (CCP). By making an example out of Evergrande Xi is sending a message that he wants the legitimacy of the CCP to be in the hands of the common man and not the elites. With the upcoming Party Congress and the setback which the Chinese economy has faced due to the Covid 19 pandemic make it ever more pressing on Xi to show that he is committed to bettering the status of the Chinese people and the Chinese economy without compromising on the core aspects of the CCP.
Disclaimer: The views expressed in the article are personal.
Dr. Gunjan Singh is an Assistant Professor at the Jindal Global Law School, OP Jindal Global University.
