China, Evergrande Bankruptcy Crisis?..."USA, Mind Your Own Business"

Chinese State Media Mock "Federal Government Default Is on a Different Level Than Evergrande"
Evergrande to Be Handled Like Hainan Airlines, Baoshang Bank, and Huarong Asset Management Group

[Asia Economy Beijing=Special Correspondent Jo Young-shin] Chinese state media mocked the United States over its national default crisis, comparing it to the bankruptcy crisis of Evergrande Group.

The Global Times reported on the 27th through a column that two default cases are being discussed in the global financial market, with the imminent default of the U.S. federal government being one of them. The media pointed out that while Evergrande Group's default crisis is limited to an individual company's problem within a country, the U.S. federal government's default is a national issue of a different dimension.

[Image source=Reuters Yonhap News]

The Global Times drew a clear line regarding Evergrande Group's financial difficulties, stating that it is merely an individual corporate issue where a Chinese real estate developer faced financial troubles after reckless business expansion such as producing electric vehicles and operating a professional soccer team.

However, it explained that in terms of the shock to the financial market, the U.S. federal government default is on a different level. The media criticized that U.S. Treasury Secretary Janet Yellen has been trying to raise the federal government's debt ceiling for eight months since taking office but has yet to achieve results. In fact, the U.S. federal government's debt has already exceeded the legal limit of $28.78 trillion, and if the debt ceiling is not raised, the U.S. could face a national default crisis next month.

The Global Times warned that if Secretary Yellen's efforts fail, a disaster could strike the global market worldwide. Citing U.S. media reports, the outlet said Yellen sent a warning letter to the U.S. Congress stating that a federal government default would shake the global financial market and slow economic growth. It added that Yellen previously met with CEOs of major U.S. financial companies such as JPMorgan, Bank of America, and Goldman Sachs to discuss the impact of a federal government default.

The Global Times quoted financial market experts expressing concerns that if the U.S. federal government fails to raise the debt ceiling, $15 trillion in assets could vanish, over 6 million jobs could be lost, and a crisis greater than the 2008 global financial crisis could occur.

[Image source=Reuters Yonhap News]

The media also mentioned U.S. media reports on Evergrande Group's bankruptcy crisis on the 21st. It expressed dissatisfaction that U.S. media last week flooded articles suggesting that the default possibility of a Chinese real estate developer could spread to the entire Chinese real estate market.

It stated that Guangdong Province, where Evergrande Group's headquarters are located, and Shenzhen City have more than sufficient finances compared to other provinces and cities. Even if local governments refuse to provide financial support to Evergrande Group and it ultimately goes bankrupt, it emphasized that there would be no problem in the Chinese financial market system.

It also predicted that Guangdong Province and Shenzhen City would not rush to resolve Evergrande Group's debt issues. Since the responsibility for Evergrande Group's insolvency lies with the company's shareholders and management, self-help efforts should come first. It reported that Evergrande Group has begun self-help efforts such as starting to sell apartment development projects underway across China.

The media emphasized that Chinese financial authorities proactively presented debt management measures for real estate companies last year, and most Chinese real estate developers are complying with those standards.

In fact, last year, the People's Bank of China, the central bank, and the Ministry of Housing and Urban-Rural Development set standards for debt management, including ▲asset-liability ratio below 70% excluding advance payments ▲net debt ratio (debt minus liquid assets divided by equity) below 100% ▲cash ratio exceeding 100% against short-term debt, warning that these would be enforced from January 1, 2021. Evergrande Group failed to meet all three conditions, leading to the suspension of financial sector funding.

The media forecasted that Evergrande Group's future handling would follow the same approach as Baoshang Bank, Hainan Airlines, and Huarong Asset Management Group. These companies survived through restructuring such as asset sales, major shareholder equity write-offs, capital conversion, and changes in major shareholders.