China, Blackstone listens to Soros and retires. Crisis for the real estate sector

There was once a time when China launched the great season of opening and reforms, creating the basis for the explosion of the private sector and the birth of the giants that dominated the domestic market for a few decades and then began to expand. on an international scale. Once upon a time there was a China where the middle class was growing at a disruptive rate, as was the trend towards urbanization. It was a time when massive growth took place in an unregulated manner. In which the sometimes “disordered” concentration of capital and debt investments were allowed. Now, however, China has decided to change its register. Growth from “everything and now” is no longer enough, now the long-term strategic objectives must be preserved.

The new Chinese growth system, anticipated by Xi Jinping in his first post Beidaihe speech but actually deriving from the “double circulation” launched before the fifth plenum in October 2020 and from the new development model intimated by the president, is having repercussions on the real estate sector. In recent days, global rating agencies have downgraded the rating on the bonds of Evergrande, the main Chinese player in the branch. Evergrande, in whose rescue several private companies including Suning (owner of Inter Milan) participated only a few months ago, now risks default.

Blackstone retires and Soho China collapses on the stock market

But the crisis is spreading across the industry. On Monday 13 September, the real estate developer Soho China plunged more than 30% on the Hong Kong stock exchange. The company was identified by US private equity Blackstone, looking for investment and growth opportunities in the People’s Republic. A move that had been harshly criticized by financier George Soros, who had spoken of a systemic risk for the Chinese real estate sector, as well as for the Beijing economy in general, somewhat on the basis of what happened in the US with the Lehman Brothers case. which triggered the 2008 financial crisis.

Blackstone had made it known that the pre-conditions of the deal would not be met in time and withdrew the offer. The US fund valued Soho China at around US $ 3.3 billion in June, but the Chinese government’s tightening on the private sector with strong antitrust activism was a setback and a wake-up call for the foreign investor. The Chinese government has expanded its regulatory arsenal, making it more difficult for large private giants to raise liquidity. This has caused various companies in the sector to enter into crisis, starting with Evergrande.

The parable of the Chinese real estate sector

It’s not a casuality. It was the real estate sector that benefited most from Deng Xiaoping’s opening season. Symbolic that Evergrande founder Xu Jiayin moved to Shenzhen in 1992, the very year in which the small helmsman relaunched reforms and opened up to privatization and modernization of the Chinese tax system. Still from the same city, at the end of the twenty years of strategic opportunities prophesied by former president Jiang Zemin in 2002 in the aftermath of September 11 and China’s entry into the World Trade Organization, however, the opposite process started. During his pre-Plenum visit to Guangdong, Xi launched dual circulation and affirmed a greater presence of the state, and therefore of the Party, in the economy.

The real estate sector is also called to grow and operate in a healthier way, after having proceeded for decades with a debt investment model that had made it prosper. Now the risk of repercussions on the whole sector exists, but Beijing intends above all to preserve political stability and sustainability of the model of economic growth in the long term. It is a pity if in the meantime some giants may also risk falling.

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