As of this writing, we are still waiting to find out what will happen to the troubled real estate developer, Evergrande, and its oversized mountain of debt, and more importantly, whether or not the CPC may divinely intervene to save Evergrande from the valley of the shadow of death.
Perhaps ― and as always ― the Bible has the answer.
The Book of Job, in the Bible, says, "God gave me everything I had, and they were his to take away too." This statement is insightful! According to biblical logic, the CPC gave Evergrande every penny it has. And it is the CPC that has the power to take everything away from Evergrande, too.
In China, real estate developers like Evergrande cannot accumulate that kind of tremendous wealth without the blessings of the CPC. Like the biblical figure, Job, however, Evergrande lived an ungodly life, engaging in risky practices for years, leading to the current liquidity crisis.
So, the CPC, under Xi Jinping's leadership, decided to send a warning to companies like Evergrande by announcing the so-called "Three Red Lines:" one, a 70-percent ceiling on liabilities to assets, two, a 100-percent cap on net debt to equity, and three, a cash to short-term debt ratio of at least 100 percent. Evergrande has failed all three. It has since been denied loans from banks, triggering its current crisis.
Two immediate questions come to the fore. First, can the CPC contain the crisis? Second, will the CPC intervene to resolve the crisis?
From an analytic perspective, these questiosn are actually two peas in a pod. The CPC, in a sense, engineered this challenge for Evergrande to send a warning (and also to others in the real estate market) and to teach a lesson. Just like for Job in the Bible, this is a test. That said, it will also mean that Evergrande is not China's "Lehman moment," as some media reports are calling it.
Whether or not the CPC will come to Evergrande's rescue is an interesting question. Those who believe in the business maxim of "too big to fail" are betting that the Chinese government will, in the end, intervene. Others, however, point out that doing so will go against the moral doctrine of Xi Jinping, who has been underscoring "Common Prosperity," and the need to eradicate corruption and acts of business malpractice like those of Evergrande.
After all, it's Xi's decision to make. Yet, unlike God of the Bible, Xi is known to enforce strict rules, increasingly turning to the "no exception" principle, in running matters. He publicly vowed to crack down on both "tigers" and "flies" ― in other words, powerful political heavyweights and lowly bureaucrats together.
If this is the case, then, it is likely that Xi will allow Evergrande to disintegrate and collapse. Doing so fits with his publicly avowed principle. It will also have the effect of calming down the overheated real estate market in China. It will also send a "justice-served" message to socially underprivileged people who have not been able to afford to buy a house.
On the other hand, Xi will also want to avert a financial crisis ―a seismic impact from the Evergrande collapse. Xi's administration should also send a message of reassurance and protection to grassroots investors and consumers.
The keyword is "social stability." As long as Evergrande ― the Godzilla in this case ― falls down in an orderly fashion, creating a minimum level of dust, that will be acceptable. China's property sector will face the music, learn the lesson. The Chinese economy, overall, will likely come out healthier.
The problem is that Evergrande's top boss, Hui Ka Yan, turned out to also be a man of faith. He publicly vowed to turn over a new leaf after passing this test. "I firmly believe that Evergrande people's spirit of never admitting defeat, and becoming stronger when the going gets tough, is our source of strength in overcoming all difficulties!" he said. It seems that he hopes that this saga will turn out like that of Job in the Bible.
Lee Seong-hyon, Ph.D. (sunnybbsfs@gmail.com), is a visiting scholar at Harvard University's Fairbank Center for Chinese Studies. He is the former director of the Center for Chinese Studies at the Sejong Institute.