Economy News Shares

Evergrande Group under regulatory pressure

Sponsored

Evergrande Group (formerly Hengda), a Chinese real estate conglomerate that has been badly impacted by real estate regulations and has been subject to public allegations from the Chinese government, has plummeted in the first half of the year.

evergrande group

Evergrande Group announced the day before its first-half net profit would be between 9 billion and 15 billion yuan, as reported by the state-run Xinhua news agency on the 26th. In comparison with the same period last year, when the COVID-19 pandemic struck, this represents a decline of 29% to 39%. In the real estate development sector, it lost 4 billion yuan, while in the new energy vehicle sector it lost 4.8 billion yuan.

Because of the Chinese government’s real estate regulations, Evergrande Group’s profits declined as real estate prices fell and costs rose. Evergrande Group is also over-indebted.

According to President Xi Jinping’s directive, housing should not be speculated, Chinese authorities limit the loan ceiling for real estate companies to 12.5-40% and investigate real estate development financing and sales prices.

Moreover, the central government summons real estate officials from various local governments, including Guangzhou, and criticizes property speculation.

In a meeting on the 30th of last month, the Central Politburo, the highest authority of the Chinese Communist Party, decided the direction of economic policy for the second half of the year and ordered the stabilization of real estate and housing prices. During the meeting, President Xi emphasized “common wealth” as the guiding theme. According to some experts, real estate property tax and inheritance tax will be introduced at an increasing rate.

The Chinese real estate market has been stagnating since the beginning of this year. There are no buyers even though apartment prices in Xueqipang, a “good school district” in major Chinese cities, are falling by over 30%.

Zhu Bao-Liang, chief economist of the National Information Center, a think tank within the National Development and Reform Commission (Development and Planning Committee), a department responsible for China’s economic planning, had an interview with the Financial Times earlier this month. Compared to the same period, the forecasts are 6.3% and 5.0%, respectively, with real estate investment and exports contracting.

Evergrande Group is China’s largest property company, which has grown rapidly with China’s property boom. Chairman Xu Jain was once the richest man in China. The excessive accumulation of debt, however, raises the possibility of default.

Currently, Evergrande Group is trying to sell various assets, such as a 65% stake in the electric vehicle division to Xiaomi and shares in Hengtung Network Group in order to settle its debt and overcome its liquidity crisis.

For MetaNews.

Avatar

Jonathan Hobbs

Jonathan Hobbs is an Australian investor and author that trades on a variety of asset classes, including currencies, equities, and commodities. Jonathan’s experience as a macro trader leverages his unique writing style to combine important elements, such as technical analysis and news. The other elements that he brings into his unique writing styles are foundation analysis aimed at rational equilibrium values, evaluating the sizes and motivations of buyers and sellers, as well as identifying the needs of the buyers and sellers in the individual markets. Jonathan is committed to quality writing for new traders as well as veterans.

Related Posts