"Where is Jack Ma?” Current Updates on China - Bubbles, Declining Birth Rate, Alibaba Compromises
Hello, everyone, welcome to “Inconvenient Truths”. I am your host Jennifer Zeng.
It has been a while since I updated everyone regarding the economic situation in China. So today I will make this up. I will talk about several huge cases, including what happened to China’s richest man Jack Ma and his e-commerce empire Alibaba, and the possible reasons behind it.
Huaxia Happiness: No Longer Happy
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The first case I’d like to talk about is a huge real estate group called Huaxia Happiness. In terms of its earnings, net assets, net profit per share, and total income and return in 2019, it ranked in the top 10 among the 114 listed companies in the real estate sector in China. If you check the page of some of the financial data on its website, it still tells you that in 2019, it had 105 billion yuan income, and that is a 25.6% increase from the previous year, and 14.6 billion yuan’s net profit, an 24.4% increase from the previous year.
Website of Huaxia Happniess
Financial Dafa of Huaxia Happiness for 2019
However, several days ago, on Feb 1, it suddenly announced "the failure of the company and its subsidiaries to repay some debts on time". In the "announcement", Huaxia Happiness says that up to then, the principal and interest amount involved in the overdue debts is 5.255 billion yuan, involving bank loans, trust loans, and other forms of debt, etc.
In the meantime, as of January 31 this year, the company had a monetary fund balance of 23.6 billion yuan, of which only 800 million yuan was available, or could be used to pay off the debts.
That is to say, the capital chain was already broken. As Huaxia Happiness is such a big company, its debt default brought a big shock to the market.
Several months ago, in Sep. last year, I shared a similar story about another big real estate company Evergrande. It was China's largest real estate developer by contracted sales in 2019. After encountering a similar problem of a broken capital flow, it virtually “blackmailed” the local government, and asked the government to support it. Because it was “too big to fail”, its blackmail was successful at that time.
Now, the same thing happened to Huaxia Happiness, which is in Hebei Province near Beijing. Will the local government try to save it as well? Or does the government have the ability to save it? Probably not.
Too Many Bubbles
Why do the same stories happen in the real estate market in the first place? As far as I can see, there are too many bubbles in the real estate market in China. China’s house price to income ratio is the second-highest in the world. As much as 70% of residents’ wealth is locked in the real estate market.
In other words, the house price is too high. But because too many people’s invested interests are in this sector, including local governments, state-owned banks, big developers, high prices must be maintained to ensure those people’s interest.
But excessive borrowing in this sector has always been a huge problem. So last year the government drew 3 red lines for the real estate companies to try to cool the market down. All the 3 red lines involve putting a limit to what kind of companies can keep on borrowing. If you’ve already had a high debt ratio, you cannot borrow any more.
So Huaxia Happiness might have been caught up by these new red lines, and couldn’t borrow new debt to repay the old ones.
This is to look at things from a microscopic viewpoint.
Big Problems
But if we put this problem at a bigger background, we can see that there could be two other reasons. One is that because of the pandemic that has been going on for over a year now, the Chinese economy as a whole is also suffering badly.
Another factor is, in recent years, the birth rates have been falling in many cities and provinces. For example, in Taizhou city in Zhejiang province and Guiyang city in Guizhou province, the birth rate in 2020 dropped by more than 30%.
Some experts estimate that China now actually has only 1.2 billion people, instead of 1.4 billion we usually know of. China’s National Bureau of Statistics recently announced that it would postpone the release of birth data for 2020. This is a very unusual thing to happen. One possible explanation is that they need to “polish” the data so that they won’t look too bad, and can fit well with the data from the seventh census.
So, if we consider these bigger factors, we shouldn’t be surprised if, in the future, more real estate companies collapse.
HNA Group: From Buying, Buying, and Buying to “Bankruptcy Restructuring”
The second case I want to share is the “bankruptcy restructuring” of the HNA group of China announced on Jan. 29. HNA Group is China's fourth-largest airline and second-largest privately owned enterprise. As of the second quarter of 2019, HNA Group's total liabilities reached 706.7 billion yuan, and its gearing ratio reached as high as 72%. The mess left behind by HNA is alarmingly large.
This company was established in 1998 and was once China’s largest asset buyer. For a period of time, it kept on buying, buying and buying all over the world. For example, it once bought 20% of the shares of NH Hotel Group of Spain, 25% stock in Hilton Worldwide Holdings, and 100% of the shares of several other very big international companies.
But now, only several years later, it went into “bankruptcy restructuring”.
“Where is Jack Ma” and What Happened to Ant Group’s Projected Largest IPO in the World?
Now, let’s go to the story of Jack Ma and Alibaba.
In the past several months, there have been a lot of dramatic events, as well as speculations and rumors surrounding Jack Ma and his company Alibaba, the world's largest retailer and e-commerce company.
It all started in Oct last year when Jack Ma openly criticized Xi Jinping for his handling of the financial market, saying that there was no system in terms of financial market regulations in China.
After that, on Nov. 2, China Securities Regulatory Commission dropped a shock bomb by saying that the market regulators had just sought a “talk” with Jack Ma and several other senior members of Ant Group, which was supposed to launch the world’s largest IPO soon. Ant Group is a financial service company founded by Jack Ma. Alibaba owns about ⅓ of it. It owns China's largest digital payment platform Alipay.
And then, the much anticipated IPO of Ant Group was halted on Nov 3, in just less than 48 hours when it was supposed to happen.
As a result, Alibaba’s share dropped as much as nearly 10% in both the US and Hong Kong stock markets.
Since then all sorts of speculations and rumors started to pop up. Some say Jack Ma was under control and banned from leaving China, some say he had already escaped from China and was hiding on some small island, etc. Because there is no transparency with such sensitive issues in China, it is easy for all sorts of rumors to find their ways on social media.
After disappearing from public eyes for nearly 3 months, Jack Ma made a video appearance on Jan. 20. Let's take a look at the video. (play the video) In this video, he talked to about 100 countryside teachers and thanked them for their hard work. But he didn’t mention at all what happened to Ant Group, Alibaba, or himself. But people at least knew that he was still in China, and under the control of the CCP.
On Jan. 25, many internet platforms including Alipay all took down their bank deposit products. The deposits of about two trillion yuan (RMB) on these platforms will be "centrally deposited" by China’s central bank and other commercial banks. This means that customers of these platforms can no longer directly deposit money to their bank accounts via these platforms. They can only directly do so via their banking system. Experts say that this is because the Chinese Central Bank lacks money and liquidity, so that it wanted to get all the money into its own hands.
The latest somewhat “official” news we got is that Alibaba’s e-commerce platform “Taobao” will be the exclusive e-commerce sponsor for China Central TV’s Chinese New Year Gala, and will throw out as much as 2 billion yuan, which is about 309 million US dollars, to the viewers as awards, to attract more people to watch the Gala.
Another piece is published by Bloomberg, saying that Ant group has reached some kind of agreement with Chinese regulators on a restructuring plan that will turn Jack Ma’s fintech giant into a financial holding company, making it subject to capital requirements similar to those for banks.
When these two pieces of latest news came out, people say that Jack Ma must have reached some sort of compromise with the CCP, which means that the CCP will allow Alibaba and Ant Group to continue to exist, but Jack Ma must give out a lot of his core interests to the CCP.
What are his core interests?
Ant Group and Alipay are obviously all part of the core interests. The CCP has been very tough on its financial control. The big state-owned banks, although they are very incompetent, inefficient and inconvenient, they are the CCP’s own assets, so the CCP must make sure that no other people are in their way, or are able to compete with them.
On the other hand, although Jack Ma is also a CCP member, and must have also received a lot of support from certain CCP factions, or has some CCP factions behind him, his business empire is not under the direct control of the CCP. When more and more Chinese people choose to use Alipay and Ant Group’s products and services, the CCP’s banks are losing their businesses. When you are too big, you impose a danger to the CCP’s banks.
Another very important, or the most important asset of Alibaba is its big data. With so many users using Taobao and Alipay, all their information, including their financial status, what they like to buy, how often they consume something, where they go, where they travel, where they stay when they travel, etc., all the data is owned and controlled by these platforms.
We all know that the CCP has been very aggressive in building up its digital totalitarianism in recent years. It has invested a huge amount of money to build up the infrastructure, such as Sharp Eye surveillance system, Smart City projects, social credit systems, etc. With digital totalitarianism becoming the core tool for the CCP to control its people and the entire society, it of course wouldn’t feel comfortable with all of that big data being owned and controlled by a private company.
Communism= An Ideology of Common Ownership
I think these are the fundamental reasons why Jack Ma and Alibaba were suppressed by the CCP. Actually, several years ago, there were already talkings about having the private enterprises exit from the Chinese economy, as they had accomplished their historical mission, and were no longer needed.
There were also quite a few big names of big private enterprises that publicly said that if the CCP, or their dear motherland, needs to take their enterprises away, they would be very happy to contribute. They made this kind of gesture to be politically safe and correct.
So, in essence, the CCP’s mentality is that the Party owns everything in China. Even if they temporarily allow you to run “private companies”, and to make money, or to make as much money as Jack Ma has, when it’s time for the party to take them back, it will just take them back.
Jack Ma has been a legacy for many years. He started from a nobody, and eventually became the richest person in China, and once in the entirety of Asia. So many young people took him as a role model.
Biden’s China Policy: Working with the CCP Will Only Make it Stronger
However, in CCP’s China, nobody is absolutely safe. Communism in Chinese is Gong Chan Zhu Yi, which means an ideology of common ownership. So under this common ownership ideology, there is no such thing as private ownership. That’s why the CCP never felt guilty or wrong for just confiscating or taking away all of other people’s properties and belongings. It is very sad that when the CCP started talking about how it would open up its market and learn from the West, so many people were deceived into believing that the CCP would finally join the big family of the civilized world and play by the same rules. It never intended to do so.
That’s why I felt very bad when hearing Biden say that “the United States is ready to work with China when it is in its interests to do so.” To work with the CCP is to make the common enemy of mankind stronger, and allow ourselves to be taken advantage of, or even be destroyed by the CCP.
That’s all I will say for today. Thank you very much for watching. Please do make sure you subscribe to and are still subscribed to my channel. If you have missed my previous videos, please do check them out.
Thank you. See you soon!
2/5/2021 *
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