Graph of the Week | Economics
Distressing Days Ahead for Evergrande and Its Debtors
Two strikes, you’re out? Not yet, perhaps, but Evergrande Group is on thin ice after missing its second bond payment on Wednesday.
Per its dollar bond prospectus, Evergrande has 30 days to pay out its US$47 million obligation before it’s officially in default. What more, this follows last week’s missed interest payments of US$83 million. With more than US$720 million in offshore bond payments due by the end of the year, and with its stock and bond prices at just fractions of past heights, a default seems all but certain.
While a bailout is unlikely given Beijing’s intent on financial de-risking and cracking down on real estate speculation, officials have done everything shy of it. Policymakers granted Evergrande an opportunity to reset its debt terms earlier this month and are now prodding state-owned firms to buy Evergrande’s assets.
Bottom line: At this point, the key is preventing insolvency. In an economy that reportedly generates 29% of its GDP from real estate production and property-related services and in which 75% of household wealth is tied up in real estate, insolvency could have untold ripple effects across the entire economy. And, importantly, Evergrande is still on the hook for up to 800 incomplete, yet pre-sold housing projects.
Markets | Policy
China’s Crackdown In Casino Town
Investors are hedging their bets against Chinese casino operators as the industry plays a few rounds of blackjack with government regulators.
Macau has long been seen as the Las Vegas of the East, yet explosive growth over the past two decades has dethroned Sin City and shaped the former Portuguese colony into the largest gambling hub in the world.
Officials in Beijing have become wary that the special administrative region is overly reliant on gambling, and they’re not looking to sit on their cards. Policymakers are planning to hold a 45-day forum that will address regulatory oversight, gambling license limitations, employee welfare, and a full house of other issues that could threaten Macau’s economic hot streak.
After news of the regulatory review broke, shares of Macau’s most prominent casino companies plummeted on the Hong Kong Stock Exchange. Wynn Macau, for instance, fell 34% while Sands China dropped by 28% for a combined loss of US$5 billion in market value. Not even US casino companies were spared: Las Vegas Sands Corp, Wynn Resorts, and MGM Resorts all saw minor losses as well.
Bottom line: Chinese regulators aren’t bluffing. This is just one more notch on the belt for regulators that have gone on tilt as they increase regulatory oversight in countless Chinese industries. For Macau, though, the real test will be when casino operators are up for license renewal in less than a year. Until then, the show goes on.
Economics | Trade
War & Peace Over Beef
Trade war? What trade war?
China and the US have beefed up trade activity after Chinese beef supply chains have been chopped up by China’s barnyard mess of political and economic throes.
China is now the largest beef importer in the world following decades of growing demand at home. To satiate domestic cravings for the sublime savory protein, Beijing has sought trade deals with countries in every corner of the globe.
Yet, Chinese trade restrictions on Australian beef exports, Argentinian limits of beef exports to contain inflation, and as of last month, a bout of mad cow disease in Brazil have left Chinese markets hangry and mooing for mo’. Now, as one of the last major exporting countries available, US beef exports to China have jumped over the moon at 1,300% year-over-year growth.
Bottom line: Despite supply chain woes, Chinese beef prices have remained largely unchanged and the end consumer relatively unimpacted. Trade with Brazil is expected to resume quickly, though worries over Argentina’s economic volatility weighs heavily on Chinese beef importers. Still, while the US has come in clutch with enough exports to meet domestic demand, China’s geopolitical spat with Australia has begun to bear unintended consequences at home, which is likely to become more prominent as pork supply remains volatile and demand for beef continues to grow over the next decade.
TCG’s Best of the Best
Stay Smart With TCG’s Shuǎng Stories
To bring you the freshest China news on the block, we read. A lot. Here’s one of our crew’s favorite reads of the week:
Slow Chinese Newsletter
At TCG, we’re big fans of studying Mandarin, and we also happen to love newsletters. That’s why we can’t help but recommend Slow Chinese 每周漫闻, a weekly newsletter that helps you maintain and improve your Chinese language skills while staying on top of the latest language trends in China.
It’s written by Andrew Methven, a British national who first went to China two decades ago. Over the years, he’s interpreted for prime ministers and CEOs of some of the world’s largest companies.
Every Saturday, Andrew shares useful and authentic Mandarin words, phrases, and colloquialisms through discussions of current affairs, pop culture, and trends. It’s helpful for more advanced students, but it gets the TCG stamp of approval for learners of all levels.
Check it out here.
Industry | Technology
How China Is Using Technology to Solve Its Food Security Concerns
Shimmering images of megalopolises like Shenzhen or glimmering high-speed rail networks have given rise to China’s reputation for breakneck modern infrastructure development. However, China’s 1.4 billion mouths to feed have become a clear concern for Beijing as it addresses the sustainability of Chinese agriculture and food security.
Among its ~550 million agriculture industry workers, China produces a little more than 600 million tons of food annually. By contrast, the US produces over 400 million tons with just 3 million farmers.
Learn more about how farmers are employing digital technology in agricultural practices to solve China’s food security concerns in our latest China Insights article: