Evergrande Protestors Become Target of Stability Maintenance

Evergrande offices across China have been beset by protesting retail investors and homeowners concerned that the real estate giant is on the verge of bankruptcy. The company is facing a liquidity crisis and may default on its debts. At Reuters, David Kirton reported on the protests at Evergrande’s Shenzhen headquarters:

Around midday, more than 60 uniformed security personnel formed a wall in front of the main entrances to the glistening tower in the southern boomtown of Shenzhen, where protesters shouted at company representatives.

“A company as big as yours, how much money has been swindled from ordinary people?” a woman said to Du Liang, identified by staff as general manager and legal representative of Evergrande’s wealth management division.

[…] Several protesters said Du had remained in the lobby overnight. He was seen sitting on the ground and slumped against a wall on Monday, visibly exhausted.

[…] The mood was tense, with protesters attempting unsuccessfully to push through a security line blocking access to lifts. [Source]

Over 60 security personnel eventually formed a wall outside the main entrance of the company’s Shenzhen headquarters to block more protestors from entering. The state has long pegged disgruntled investors as potential security threats. A common theme of investor protests is the belief that the government induced them to invest without warning of the risks, and then disappeared when businesses went south. In a leaked 2018 public security database, unlucky (or gullible) investors were tagged as “those involved in instability,” alongside “evil cult members,” separatists, and spies, as well as seemingly mundane professions like film projectionists. In Forbes, Anne Stevenson-Yang wrote: “Hell has no fury like that of Chinese investors who have lost money in Evergrande loan derivatives or apartments that have declined in value.” Xie Yu and Frances Yoon of The Wall Street Journal report that similar protests broke out elsewhere in China:

Trouble has also erupted in recent days at the offices of Evergrande managers in the central Chinese city of Nanchang in Jiangxi province, and in Zhengzhou, in northern Henan province, photographs and videos showed.

On Monday, dozens of protesters marched in the commercial center of the western city of Chengdu, holding banners demanding Evergrande return their money “earned with blood and sweat,” according to video snapshots shared on Weibo, a Twitter-like social-media platform. [Source]

On Monday, Evergrande issued a statement denying that it faces bankruptcy. One of the many causes of the crisis is a merry-go-round home construction financing system, common in China, whereby developers sell apartments before they are built and subsequently use that cash to cover construction costs and other debts. It is estimated that 1.2 million people are waiting to move into one of Evergrande’s 800 unfinished projects. The Ministry of Housing and Urban-Rural Development informed banks that the company will not be able to make interest payments and some principal payments due on September 20, a short-term relief measure that highlights how close the company may be to insolvency. The company is reportedly transferring ownership of some of its unfinished projects in lieu of paying its debts. If unable to finish the promised units, Evergrande will undoubtedly struggle to pre-sell future apartments, further endangering the company’s liquidity.

Investors are not the only ones left in limbo by Evergrande’s financial hardships. The head of the Guangzhou Football Club allegedly wrote a letter to Guangzhou’s municipal government encouraging it to take over the club. The costs of operating the club, formerly known as Guangzhou Evergrande, are largely underwritten by Evergrande. Just last year, reigning Chinese Super League champion Jiangsu FC shut down after its parent company Suning Group ran into financial troubles. Bloomberg News provided further detail on the potential state takeover of Guangzhou Football Club in an attempt to save it from closing:

The uncertainty swirling around China Evergrande has bled into the operations of Guangzhou F.C., disrupting training for top-level and junior teams. Last week, as the company’s debt crisis worsened, the club appealed to the local government for aid. Under one possible scenario, the government of Guangdong province would assume around 10% to 15% of Evergrande’s stake in the team and a local state-owned enterprise would acquire the rest, according to one of the people. The team could also be disbanded, the person said.

[…] Evergrande loses about 1 billion to 2 billion yuan ($155 million to $310 million) on its soccer-related businesses annually, according to a report by Bloomberg Intelligence analysts Dan Wang and Daniel Fan. “We assess the current value of that business activity at zero,” the analysts wrote Sept. 9.

[…] The Chinese Super League’s “club expenditure is about ten times higher than South Korea’s K-League and three times higher than Japan’s J-league, but our national team is lagging far behind,” Chinese Football Association President Chen Xuyuan told the Xinhua news agency in February after Suning disbanded its team. “The bubbles not only affect the present of Chinese football, but also hurts its future.” [Source]


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