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View of a signboard of Evergrande Group in Ji'nan city, east China's Shandong province.
From developers to defense leaders, China’s disappearing elite
Why do Chinese officials keep vanishing? On Saturday, several executives of the beleaguered property developer Evergrande Group were arrested in the southern city of Shenzhen, where the conglomerate is headquartered. It is unclear how many persons were detained, or their names or titles, though a statement by local police referenced one individual named “Du.” There is speculation that this individual is Du Liang, who in 2021 was listed as head of Evergrande’s wealth management unit.
Evergrande made headlines in Aug. 2023 when it filed for US bankruptcy protection, and is currently undergoing a restructuring plan for its $340 billion debt. On Friday, China’s national financial regulator announced it had approved the takeover of Evergrande’s life insurance business by a new state-owned entity.
These arrests come on the heels of the disappearance two weeks ago of China’s defense minister, Li Shangfu. According to US officials, Li is under investigation for corruption along with eight senior officials who worked in a military procurement unit that he led from 2017 to 2022. Beijing, however, is staying mum: On Friday, a Chinese Foreign Ministry spokeswoman said she was “not aware” of the situation.
These incidents, as well as the recent removal of Qin Gang as Chinese foreign minister and a shake-up at the top of the country’s nuclear forces, have led to speculation that President Xi Jinping is conducting a purge within China’s defense apparatus. If so, it remains to be seen whether that reflects squabbling within the Chinese elite, a more general consolidation of Xi’s power, or a house-cleaning ahead of some big move by the Chinese president. But a wave of disappearing acts at the top of the world’s second largest economy are not a good sign.NewSouth Bookstore in Montgomery, Ala., displays books that have been banned by some schools, including "Charlotte's Web" and "Captain Underpants."
Hard Numbers: Books attacked, Trump trial looms, migrant children drown off Greece, Evergrande crisis deepens, redheads celebrate
2: Donald Trump’s election-interference trial will begin in March 2024, two years earlier than he and his lawyers had requested. The date selected by a federal judge on Monday means the proceedings will begin right smack in the middle of the Republican primaries — and just a day before Super Tuesday. Trump still holds a commanding lead in the race to be the GOP’s 2024 presidential nominee, but others are gaining a little ground.
4: Four migrant children drowned off the Greek coast on Monday while trying to cross the Aegean Sea from neighboring Turkey in a boat. The dead ranged in age from 11 months to 8 years. Some 12,000 migrants have arrived in Greece by sea this year — in July, hundreds died when a boat capsized.
2 billion: Chinese real estate firm Evergrande, AKA the world’s “most indebted property firm,” lost more than $2 billion in market cap on Monday amid ongoing concern about its ability to pay back its loans. The firm’s fate is intricately tied to broader concerns about China’s economy, which has relied heavily on property investment to boost growth in recent years. See our explainer here.
5,000: Ginger banger alert! Some 5,000 redheads gathered in the Netherlands for the annual Redhead Days Festival, which celebrates pheomelanin pride. Only about 2% of the world’s population has natural red hair.
What We're Watching: Indian farmers stop protesting, Evergrande on brink of default, Saudi camels get touch-ups
Indian farmers pack up their tents — for now. For over a year, tens of thousands of Indian farmers have been protesting three agriculture laws that they say would give more power to big agribusiness and reduce farmers’ incomes. (The government says they rather aim to streamline an outdated and inefficient sector.) Now, farmers’ unions say they will call off the protests — and shut down the makeshift protest camp they built on the outskirts of Delhi — after PM Narendra Modi agreed to their demands. The farmers want the government to set a minimum price for most farm produce, and withdraw criminal charges for farmers arrested during protests. Modi backing down is a big deal because agriculture is the primary source of income for nearly 60 percent of Indians, and dozens of farmers have been killed in confrontations with police over the past year. Protest leaders will meet with government officials on January 15 to assess the plan’s progress. But if the government doesn’t follow through on its promises, the farmers say they’ll go back to the picket line.
Evergrande on brink of default. Fitch became on Thursday the first global ratings agency to declare that Evergrande will likely default on its debt outside China. This means that international creditors can expect to get stiffed by the Chinese property developer, which on Monday missed a final deadline to cough up some $82.5 million to foreign investors. Does this mean that Evergrande will default on all the roughly $300 billion it owes, mostly inside China? The company and the Chinese government won't confirm it, but Evergrande's situation is looking gloomier by the day. Meanwhile, China's central bank has already loosened the rules for banks to keep cash on hand in order to inject some $188 billion into the economy. President Xi Jinping hopes that'll be enough to avoid the credit crunch that an Evergrande default could trigger in China's real estate industry and the broader financial sector amid an already sluggish economy.
Saudi camels get Botox. At the annual King Abdulaziz Camel Festival in Saudi Arabia, contestants are judged by, among other things, the size and shape of their lips, cheeks, heads, and knees. But each year, dozens of the humped mammals get disqualified because their owners inject them with Botox in order to have a better shot at the $66 million in prize money. More than 40 camels were thrown out of the 2021 edition. What’s more, the cheats have gotten more sophisticated by stretching out lips and noses, using hormones to up muscle mass, inflating body parts with rubber bands, and using fillers to relax tense faces. Think this story is fake? It isn’t. In fact, we first reported on this cruel trend almost four years ago.
Why is Xi Jinping willing to slow down China’s economy?
China's GDP grew a lower-than-expected 4.9 percent year-on-year in the third quarter of 2021, a whopping three percentage points less than in the previous period. It's a big deal for the world's second-largest economy, the only major one that expanded throughout the pandemic — and now at risk of missing its growth target of 6 percent for the entire year.
Normally, such a drastic slowdown would have put the ruling Communist Party in a tizzy. But this time, Xi Jinping knows this is the price he must pay for his big plans to curb rising inequality and boost the middle class at the expense of the CCP's traditional economic mantra: high growth above all else.
Why is GDP growth slowing down now? For one thing, a combination of rising coal prices, tighter regulations on power consumption related to climate policy, and soaring demand in countries that buy a lot of Chinese-made stuff have all resulted in an energy crunch that'll likely worsen disruptions to global supply chains that rely heavily on China.
For another, Xi's crackdown on excessive borrowing in the real estate sector — which accounts for almost 30 percent of China's economic activity but was so in the red that it posed a systemic risk — is causing a lot of pain. Evergrande and other large property developers are missing deadlines to pay their creditors, and halting projects for homes they've already sold but have no money to build.
Finally, there's the pandemic itself, via strict local lockdowns that have hurt Chinese retail and travel in the only country in the world that still believes in zero COVID.
China's leader thinks that an economic slowdown, however painful in the short term, will be worth it in the long run because the economy needs structural reforms to narrow the income gap and deliver what Xi calls "common prosperity."
In a speech that stunned the business community two months ago, Xi confirmed that "common prosperity" means vastly expanding China's middle class, partly by raising taxes on the rich. He wants some of this wealth to be redistributed in order to make China a more equal society. (Indeed, the 1 percent have seen the writing on the wall — a single mention of regulating "excessively high incomes" prompted several panicked CEOs to immediately donate billions to charity right when Xi was going after the tech sector.)
Xi's goal is for China's GDP to continue expanding, but at a less ambitious pace so Chinese workers have time to earn more and become more productive at the same time. China, he says, should move away from mostly churning out cheap exports that pollute the planet as Chinese factories have done for decades to focus on producing high-quality, sustainably-made goods for the local market.
But it's a risky move. Winding down economic activity to the 2-3 percent annual growth levels of mature economies like the US or Germany will be a tricky balancing act for China. Sluggish growth that drags on could deter investment, and trigger social unrest if unemployment gets too high as a result.
Meanwhile, slower Chinese economic growth will have serious ripple effects for the rest of the world, given China's outsize role in the global economy.
The so-called "factory of the world" will probably continue exporting a lot of stuff, but not as much as it did before, and more of its exports will be high-value tech goods. Local companies will also likely outsource more of their manufacturing to lower-cost neighbors such as Bangladesh or Myanmar, and over time most Chinese-made products will get more expensive.
Xi's "common prosperity" vision comes with many risks for China's juggernaut of an economy. But if he delivers on his promise, expect him to stay in power for a long time.- Why is Xi Jinping lurking in bedrooms? - GZERO Media ›
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China Evergrande Group logo displayed on a phone screen and Chinese flag displayed in the background are seen in this illustration photo.
Can Xi save China from Evergrande?
Evergrande, China's second-largest property developer, got on Monday its best news in months: someone's willing to buy part of its hugely indebted real estate empire, probably for fen on the yuan. But the company's still in deep trouble: it owes a whopping $305 billion — about 2 percent of China's GDP.
Chinese authorities have spent weeks bracing for Evergrande's looming default like for a slow-moving train collision. With 1,300 projects across 280 cities across China, Evergrande — a gargantuan corporation that also runs theme parks, makes electric vehicles, and owns a soccer team — is a heavyweight in China's once-booming real estate industry, which has driven much of the country's economic growth over the past decade by relying on heavy borrowing.
If Evergrande fails on its debt obligations, the ripple effects could be catastrophic. Although the Chinese government would likely protect the 1.4 million mostly middle-class Chinese families who invested their life savings to become homeowners, countless big and small suppliers that are owed a lot of cash could go belly-up, and up to four million jobs are on the line.
But the real danger is the fallout spreading to the wider residential property sector — which represents almost 30 percent of China's GDP and of outstanding Chinese loans — and from there to the financial sector. If Chinese banks get stiffed by their real estate creditors, they'll have a lot less capital to lend, and the cost of borrowing could go up for everyone.
Severe financial upheaval — similar to what happened in the US following the 2008 collapse of investment bank Lehman Brothers — would then erode confidence in China both at home and abroad little over a year before Xi Jinping is expected to confirm he'll stay on as president for 15 years, unprecedented for Chinese leaders in the post-Mao era.
Xi needs to do something, fast. But he faces a very tough balancing act.
On the one hand, he could let Evergrande default to teach the company and the entire real estate industry a lesson on irresponsible borrowing, one of the many symptoms of the no-holds-barred capitalism Xi has long rallied against. In fact, the full extent of Evergrande's debt hole only came to light eight months ago, when Beijing tightened the rules on real estate borrowing in one of the opening salvos of Xi's later wider crackdown on big tech companies and other sectors that the ruling Communist Party thinks are putting profits ahead of what Xi refers to as "common prosperity."
The problem is that Evergrande's collapse could usher in a nightmare scenario for Xi and the CCP: massive social unrest stemming from a situation in which developers who have presold residential property can't afford to build it, leaving buyers without a home nor savings, and starving local governments of the land and property tax revenues they need to keep the keep the lights on. Add a credit crunch, and you're looking at an economic slowdown the likes of which China hasn't seen since the late 1970s.
To put it simply, tough love for Evergrande could come at a very high cost for the CCP.
On the other hand, Xi could also bite the bullet by bailing out Evergrande because it's just too big to fail, to avoid sector-wide contagion, and to restore confidence. Yet, in doing so he'd be undermining his own political agenda of reducing the systemic risk within the property sector, not to mention setting a bad example for other big Chinese corporations deep in the red.
So perhaps the safest bet is a "managed" collapse, which some Chinese netizens have likened to the controlled demolition of a building. Let Evergrande crumble, but slowly, and closely stage-manage the process by "encouraging" state-owned firms to buy up the company's assets piece by piece so Evergrande can repay its debts and finish the projects it's already presold to homebuyers.
But that'll be tricky, too. Evergrande also owes a lot to foreign investors, so Xi faces yet another dilemma: risk domestic backlash by making them square first to keep overseas cash flowing to China, or prioritize paying off Chinese debt — which could spook foreign investors, at least temporarily (the world's second-largest economy is too big a prize for them to stay away very long).
Whatever Xi does, there's no easy fix. A messy default could put China's entire economic growth model into question. However, if Xi's able to stop Evergrande's debt crisis from infecting the rest of China's financial system without a bailout, he will have pulled off what mighty America failed to do in 2008 — prevent the collapse of its housing market from turning into a global recession.
A Chinese flag flutters in front of the logo of China Evergrande Group seen on the Evergrande Center in Shanghai, China September 22.
What We’re Watching: China’s Lehman moment, Malians heart Russia, Tunisian dictator vibes
Will Evergrande be China's Lehman Bros? Chinese authorities are bracing for the increasingly likely default of Evergrande, the country's most indebted property developer. If Evergrande — a gargantuan corporation with properties in 200 cities across China — stiffs its creditors, that'll send shockwaves throughout the country's financial system, and the wider Chinese economy and society. The possible ripple effects on home buyers and countless companies and individuals that do business with or are owed money by Evergrande have invited comparisons with Lehman Brothers, the US investment bank whose 2008 collapse triggered an American financial crisis that quickly spread to the entire world. Although in principle authoritarian China has ways of containing the fallout, the potential for social unrest is real — and opacity could make it worse. More broadly, the demise of such a big player in the country's once-booming real estate market, which accounts for over 7 percent of GDP, would expose the shaky foundations of China's debt-driven economic growth model, eroding confidence in China both at home and abroad.
Et vous, Maliens? First Australia, is Mali next? France can't be happy about what's going on in Mali these days, as protesters have taken to the streets to demand that their government distance itself from Paris and boost ties with Russia instead. The upheaval comes in the wake of reports that Mali's transitional government was about to broker a security deal with the notorious Wagner Group, a Russian private military contractors cozy with the Kremlin. France, a former colonial power which keeps counterterrorism forces in Mali, has sharply criticized any tie-up with the Russian mercs, who have been accused of war crimes elsewhere. But Malians have mixed feelings about the presence of the French troops, who have made scant headway against Islamist insurgents in recent years. As the Franco-Russian competition for influence in Mali spills into the streets, it's a reminder that Moscow has been working hard in recent years to boost its standing in sub-Saharan Africa. Will it pay off in Mali?
Tunisian president to rule by decree: In his latest bid to fix Tunisia's dysfunctional political system, President Kais Saied now says he can pass laws himself and ignore parts of the constitution altogether. This is the same Saied who suspended parliament and sacked the entire government in the wake of mass street protests about the ailing economy and COVID two months ago. At the time, many Tunisians supported his actions as a way to fix the country's broken politics, even if his opponents called it a coup. But now as his emergency period drags on, Saied — a former constitutional law prof — is starting to give off more dictatorial vibes. He says he needs more time to tweak the constitution to make it work for ordinary Tunisians, but a lot of folks are wondering about the president's true intentions now. Tunisia was the only democracy to emerge from the Arab Spring. Is that over?