The problem for the government, as Wong’s article noted, is that “property is already so entwined with China’s economy that a sudden stop could be extremely dangerous” and if the regulatory “on” button were pressed for too long this could have “very serious consequences for financial stability and growth.”
Major Chinese property developer on the brink of default
The Chinese bond market and its financial system more broadly is coming under increasing pressure because of the crisis at Evergrande, one of the country’s largest property developers, with potential flow-on effects for international markets.
The company, which has more than $300 billion in debts, came under scrutiny in August when the government ordered it to take action to resolve its debt problems.
The company said that with the “coordination and support of the government” it was working with suppliers and construction companies to resume work on its property developments. It has 778 projects across 233 cities in China.
In its earnings report, issued at the end of last month, it reported a fall in net profits for the year and warned that if work did not resume there was a risk of “impairment” on the projects and problems for its liquidity.
Since then, the situation has gone from bad to worse. The company is engaged in a desperate scramble to sell off assets and raise cash while warning it faces the risk of default on bonds that are about to fall due.
In its report on the crisis the Financial Times warned that a default, exposing the perilous state of China’s property market, would be a “debacle that could cascade across global markets.”
This week shares in the company fell below their 2009 initial public offering, following downgrades by the major credit rating agencies and warnings of a debt default. Shares in the company have dropped by 76 percent this year and the price of many of its bonds has fallen to around 30 cents on the dollar.
Fitch Ratings has again cut the rating on Evergrande bonds to CC, warning of a default.
“The downgrade reflects our view that a default of some kind appears probable,” the Fitch statement said. “We believe credit risk is high given tight liquidity, declining contracted sales, pressure to address payments to suppliers and contractors, and limited progress on asset disposals.”
The day before the Fitch move, Moody’s cut Evergrande’s credit rating by three notches, its third downgrade of the property giant since June. It said its current rating implied that Evergrande was “likely in or very near default.”
The property developer, one of China’s biggest borrowers on international markets, has been one of the most prominent of the giant real estate firms that have emerged in the past two decades. It was founded in 1996 by Hui Ka Yan, who built a financial empire on massive borrowing and land acquisitions, with support from high officials in the government, and at one point became the richest man in the country.
But it has been heavily affected by moves initiated by Beijing to rein in speculation, particularly in real estate and property development, because of the dangers it poses to the financial system as a whole.
Financial authorities imposed new regulations, known as the three red lines that determined whether companies could take on additional debt, with stipulations covering cash reserves, equity and assets.
Evergrande is not the only property developer experiencing major problems. This week the bonds of Guangzhou fell by more than 20 percent in a single day and are now trading at 60 percent of their face value. The plunge came after Moody’s downgraded its credit rating and warned about the company’s ability to refinance itself.
Fantasia, another property developer, is also in financial difficulty and told the Hong Kong stock exchange earlier this week it had made purchases of $6 million of its own bonds.
The impact of the new regulations is widespread. According to a report in Bloomberg, Morgan Stanley has calculated that property firms defaulted on $6.2 billion worth of risky debt in the year to mid-August, about $1.3 billion more than the previous 12 years combined.
Economists at the Japanese financial giant, Nomura, have warned that the restrictions on property developers are going too far and are “unnecessarily aggressive.” They have even called it a “Volcker moment”––a reference to the high-interest rate regime introduced at the beginning of the 1980s by Fed chair Paul Volker that devastated the US economy and led to the highest unemployment rates since the 1930s.
The implications of the crackdown on property development borrowing for the Chinese economy were pointed to in an article by Wall Street Journal writer Jacky Wong published earlier this week.
Characterising property development as “arguably the most crucial industry in China,” he noted that when related businesses like construction material and housing appliances are included, “the sector accounted for 16.4 percent of China’s economy last year, according to Nomura.”
The tightening of restrictions by the Xi Jinping regime is being conducted under the banner “housing is for living, not for speculation.” This is part of efforts by the regime to be seen to be tackling the rise of inequality in China. But having promoted the very speculation that it is now seeking to curb the government is caught in a trap of its own making.
Its efforts to reduce speculation threaten to stifle one of key engines of Chinese economic growth over the past period. Developers are reported to have sold 21 percent fewer homes in August compared to a year before. The extent of the housing boom is reflected in the rise of household borrowing which is now 62 percent of gross domestic product compared to 44 percent just five years ago.
The problem for the government, as Wong’s article noted, is that “property is already so entwined with China’s economy that a sudden stop could be extremely dangerous” and if the regulatory “on” button were pressed for too long this could have “very serious consequences for financial stability and growth.”
Similar views are being voiced elsewhere. A note by two Bank of America economists on Tuesday warned that a rapid slowdown in the property market could have “significant spillover effects. While the motivation such credit tightening was to stabilise leverage and rebalance the economy, the risk is rising for growth instability amid fast deleveraging.”
A comment by Australian Financial Review columnist Karen Maley drew attention to the international ramifications of the Evergrande crisis. Foreign investors were becoming “fretful” that Beijing was preparing to separate out Evergrande’s real estate arm from any rescue operation, leaving the holding company, in which they are heavily invested, with the debt. This would mean they would incur substantial losses.
Consequently, they are “stampeding towards the exits” and seeking to sell off their bonds. As she noted, the problem for Beijing is that “while it may be able to limit the damage that an Evergrande default inflicts on the local economy, it is powerless to limit the impact of the country’s $12 billion bond market.”
A case study in “human rights imperialism”
New York Times cites US torturer Michael Chertoff on Chinese “repression”
Over the weekend, the New York Times published an editorial entitled “Repression Without Borders,” which presented China as the world’s leading purveyor of “transnational repression.”
There is one source quoted in the 1,500-word editorial, a report by Freedom House, an organization the Times says nothing about. Based on this report, the editorial concludes:
The worst offender, Freedom House reported, is China. “China conducts the most sophisticated, global and comprehensive campaign of transnational repression in the world,” the report said, describing how Beijing marshals its technological prowess, geopolitical clout and vast security apparatus to hound not only the many Chinese people living abroad but also entire ethnic and religious groups, such as Uyghurs, Tibetans and followers of Falun Gong. “The sheer breadth and global scale of the campaign is unparalleled,” Freedom House declared.
If the Times followed the most basic rules of journalism, it would explain what “Freedom House” is, its pedigree and reliability, and whether it has any conflicts of interest. It would write a paragraph along the following lines:
Freedom House receives 90 percent of its funding from the US government. Its current chairman is Michael Chertoff, who served as US Secretary of Homeland Security under President George W. Bush, and co-authored the USA Patriot Act, which justified mass illegal surveillance, torture, and the assassination of American citizens. Chertoff has been accused of war crimes.
But no such information appears, because the editorial is deliberately misleading. The problem for the Times editorial board is that, whatever the US accuses China of doing, the US has done on an incomparably greater scale.
Worse, the man under whose imprimatur the report was published was a leading architect of the most sweeping acts of domestic repression and criminality in American history. If the Times were the slightest bit serious about opposing “transnational repression,” it would demand the immediate arrest of Michael Chertoff.
As head of the Justice Department's criminal division in 2002-2003, Chertoff was directly involved in planning and implementing the Central Intelligence Agency’s torture program.
According to an article published by the Times in 2005, Chertoff “advised the Central Intelligence Agency on the legality of coercive interrogation methods,” telling them torture “could be legal.”
With Chertoff’s blessing, the CIA abducted and tortured people around the globe, sexually assaulted and grievously beat men, women, and children for months and years, in some cases to the point of death. According to a report by the Open Society’s Justice Initiative, the CIA illegally detained and tortured 136 individuals, with the complicity of “as many as 54 foreign governments.”
Following the terrorist attacks of September 11, 2001, the U.S. Central Intelligence Agency (CIA) commenced a secret detention program under which suspected terrorists were held in CIA prisons, also known as “black sites,” outside the United States, where they were subjected to “enhanced interrogation techniques” that involved torture and other abuse. At about the same time, the CIA gained expansive authority to engage in “extraordinary rendition,” defined here as the transfer— without legal process—of a detainee to the custody of a foreign government for purposes of detention and interrogation.
Today, more than a decade after September 11, there is no doubt that high-ranking Bush administration officials bear responsibility for authorizing human rights violations associated with secret detention and extraordinary rendition, and the impunity that they have enjoyed to date remains a matter of significant concern.
The CIA’s treatment of the wrongly-accused German national Khaled El-Masri is just one example of the crimes that Chertoff helped perpetrate.
The CIA stripped, hooded, shackled, and sodomized El-Masri with a suppository as Macedonian officials stood by at the airport. The CIA then drugged him and flew him to Kabul to be locked up in a secret CIA prison known as the “Salt Pit,” where he was slammed into walls, kicked, beaten, and subjected to other forms of abuse.
The horrors of the US torture program were exposed to the world by “60 Minutes” and Seymour Hersh in May 2004, with images of hooded, naked prisoners stacked in pyramids, smeared in human excrement, and forced to masturbate in front of guards.
Hersh, horrified by what he had seen, described women being forced to witness the rape of their male children, in footage that has to this date never been released. “Those women who were arrested with young boys, children in cases that have been recorded. The boys were sodomized with the cameras rolling. And the worst above all of that is the soundtrack of the boys shrieking that your government has. They are in total terror.”
It is difficult for many people to understand the degree to which the American media functions as a conduit for state propaganda, with all other considerations taking a back seat.
But the publication of an editorial like this, with its jaw-dropping omissions and contradictions, is impossible outside of the exclusive aim of state propaganda: the manipulation of public sentiment to demonize an entire country and create the constituency for economic and military conflict.
The people who staff the Times editorial board are shameless as a professional obligation. They do not see lying as moral or immoral, they see it as part of their job, as an element of tradecraft. They have fully imbibed the mantra of the US intelligence services, once inscribed on baseball caps sent to the Nicaraguan Contras: “Admit Nothing - Deny Everything - Make Counter-Accusations.”
The aim of the Times’ editorial is to make the reader believe it starts with the impartial premise that violations of democratic rights and international law should be punished, therefore China should be punished because it violates democratic rights and international law.
In reality, the logic is reversed. The aim is to demonize China, and the means—alleged violations of democratic rights—is concocted to justify this aim.
The Freedom House report calls for countries to “Deploy a robust strategy for the use of targeted sanctions against perpetrators of transnational repression and those facilitating such acts.”
Freedom House then writes the following passage, which is totally ignored in the New York Times article:
Looming over the issue of transnational repression are the US government’s renditions and targeted killings as part of the “global war on terror” that followed the September 11, 2001, terrorist attacks, and the Israeli government’s extensive use of targeted killings outside its territory. All over the world, states engaged in transnational repression apply the label of terrorism to exiles whom they pursue, in some cases overtly citing the examples of the United States and Israel.
If Freedom House calls for “targeted sanctions against perpetrators of transnational repression,” and the world’s leading practitioner of “renditions and targeted killings” is the United States, should the US be sanctioned? Is Freedom House calling for its own chairman to be hauled off in handcuffs before the international criminal court?
Of course not. Because the point isn’t to oppose violations of democratic rights. The point is to demonize a whole country, paper over the crimes of American imperialism, and create a constituency for war.
An entire book could be written on all the crimes omitted or distorted in the New York Times’ editorial. It says nothing about Julian Assange, the world’s leading political prisoner, who is hounded and persecuted by the US government for exposing its crimes. It is silent on Washington’s mass warrantless surveillance program. It vastly downplays the US drone murders. It presents the US as a hapless bystander to the murder of journalist Jamal Khashoggi, when in fact Washington likely had advanced knowledge of the plot to kill him.
But it is enough to recall the role of Michael Chertoff in the systematic rape and torture of countless men, women, and children to prove that everyone who had a hand in writing this editorial is a shameless liar.
Note: This article intentionally excludes explicit photos of torture and sexual violence perpetrated by US forces in order to comply with Twitter and Facebook policies. Readers who wish to view images we would have included may do so on Wikimedia Commons. Extreme discretion is advised.
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