00:00China's property giant Evergrande is the listed from the Hong Kong market on Monday,
00:05which is seen as the end of China's real estate bubble.
00:08Can you walk us through why this happened as part of the country's property crisis?
00:12I would say that over the past one decade, we have seen this massive ballooning size of the
00:20China's property market and a large part of it is really filled by the leverage
00:25by developers and household. So back in August 2020, the Chinese government issued a regulation
00:33called the Freight Red Line, which basically tried to curb all this leverage behavior that the
00:39developers have. So the consequence is that in the next year, many developers, they are not able to
00:45get enough liquidity to fund their operation. First, because they are highly leveraged, so they need
00:51all this money to repay the debt that is hard for them to borrow further. Second, it's also a market
00:58that's very reliant on pre-sales home, which means that home buyers would pay upfront for their unit
01:06before it even completes it. And then the confidence has lost and therefore developers are actually facing
01:13all these two problems at the same time. Evergrande is a landmark case because it is indeed really the
01:20biggest developer in China. It's not being able to survive. It has gone through processes in not
01:27being able to issue an audit statement. The court has ordered it to liquidate the assets. It's still
01:34undergoing a restructuring process that we are not so sure what is the outcome. How does Evergrande's
01:40collapse affect China's brother economy and where does China stand now? If you look at how important real
01:47estate is to the Chinese economy in the past, it can be estimated to around 25 to 30%, which is indeed a
01:54very big part of the economy. So this number doesn't really only include the direct home sales on the
02:01construction activities, but it's really the broad impact that when there is a unit being completed
02:07and when household buy all this unit, there will be other related expenses, consumption, investment,
02:14etc. So what we see so far is that we haven't really seen a very sharp rebound in-home sales so far.
02:22There has been many policies being rolled out, but the effectiveness hasn't been that strong
02:28because houses remain rather not so confident in the future anticipation of the home prices,
02:34so therefore they're not really buying. How is China moving on from the property crisis?
02:40Is it on a positive or negative trajectory in the long run and in terms of finding new sources of
02:47growth? I would say that there has been many policies being rolled out trying to divert the
02:54pressure from real estate and trying to offset it with other development with different sectors. Indeed,
03:03we have seen some new growth sectors in maybe example is electric vehicles. China has been also quite
03:11good in producing all this green technology such as solar panels and wind turbines and there is also a
03:17gradual shift towards all this internet platform, digitalization and all this kind of tech related
03:25sectors. But the problem is that when you look at the sum of all these sectors, it's really quite hard to
03:31argue that it can really offset such a large part of the economy, which is almost a quarter of it.
03:36So I think this is why the likely outcome is that we will continue to see the deceleration on the macro
03:43growth are being dragged by what we see in the real estate sector. All these other tech related sectors may
03:49provide some buffer, but this is just not big enough to really help on the macro picture and it can really stabilise.
03:57So
04:02I already said that,
04:03I think that's good.
04:04So
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