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Evergrande: China’s $ 82 trillion hit on real estate industry could impact Australia

Real estate developer China Evergrande is like a burning plane waiting for a crash, but it’s not the only country issue that could affect Australia.

China’s housing market was worth a whopping $ 62.6 trillion ($ 83.6 trillion) last year, but everything could collapse and hit Australia.

The Chinese Communist Party has announced plans to impose property taxes on both residential and commercial real estate, as well as the Evergrande Group, one of the country’s largest real estate developers, on the verge of collapse. Did.

This is large considering that an estimated two-thirds of wealth is tied to Chinese real estate, 90% of urban families own homes and about 10% own three real estates. It’s a movement.

The proposed tax is an annual tax based on the value of the home, and experts warn that it could cause home price crashes and affect personal consumption.

Michael Schubridge, head of defense, strategy and national security at the Australian Strategic Policy Institute, said it was clear that the Chinese government wanted to find a way to shrink the overheated real estate market. ..

But he said property taxes risk doing too much damage to markets that are already suffering.

China’s President Xi Jinping has already had to abolish the introduction of property taxes nationwide, and instead is piloting the program in 10 cities, he said.

“Therefore, due to the suffering of Evergrande and others, a very difficult challenge in China’s real estate market and financial sector is recognized,” he told news.com.au.

“But even conducting this pilot in 10 cities across China would have a further impact on the predicament market, demonstrating that this will happen in other parts of China as well.

“The biggest problem is China’s social stability, because forcing the sale to multiple real estate is seen as a safer investment in the Chinese economy, not just by the wealthy Chinese people. Affects the household every day.

“It’s a high-tech sector where other Chinese investments are now under the control of the much stronger Chinese government, such as Alibaba, buying stock on the stock market on roller coasters triggered by arbitrary government intervention. Because they had a high risk, such as investing in. “

Just a year after Chinese businessman Jack Ma publicly criticized the Communist government, he has lost hundreds of billions of dollars in huge fortunes ever since.

In the last 12 months, his business, Alibaba, has lost about US $ 373 billion (A $ 497 billion) as the Chinese versions of eBay, Amazon and PayPal have all been merged into one.

Meanwhile, real estate developers’ willingness to buy land has slowed, construction has slowed, and it could hurt Australia’s most valuable export, iron ore, which it bought for A $ 149 billion last fiscal year.

Currently, China’s construction energy uses about 25 to 30 percent of the country’s steel, which is made primarily from Australian iron ore.

Budget estimates suggest that a decline in demand could mean that for every $ 10 in iron ore prices, A $ 6.5 billion will be wiped out of the Australian economy.

“I think a further slowdown in construction in China will probably affect iron ore prices, but the Treasury forecast is much lower than the market price, and much lower iron ore prices are forecasts from the Treasury. “It’s built into,” Schubridge added.

China’s real estate market is responsible for about a quarter of the country’s economic production, but Schubridge said the impact on real estate also poses broader problems.

“The bigger problem, combined with further shocks to the real estate market and other internal risks from the Chinese economy, is that Chinese have problems with where to put money that doesn’t seem to be a big risk to them.” He said.

“And if you have a rapidly aging population without a large family, who needs low-risk investments and can save older parents from financial problems when they can’t find them? That’s the big picture, and that’s why it’s not really about the housing market. ”

The decline in wealth of older parents can also hurt the billions of international students in the Australian university market.

According to an analysis by the Commonwealth Bank, Australia’s education exports reached $ 40.3 billion in 2019, fell to $ 31.7 billion in 2020, and fell 36% in the first half of this year due to border closures.

International students were also found to have paid $ 12.6 billion in tuition and $ 18.9 billion in living expenses in 2020.

However, Mr. Schubridge did not see a property problem that would have a major impact on Australia’s education system, which had already been destroyed by the pandemic.

“A much more difficult problem for the Australian education sector to understand is that the existence that Chinese students had before the pandemic and before the radical change in relations between China and Australia did not return. I think it’s very unlikely, “he said.

“If so, it will be used as a coercive measure against universities and the Australian Government, and in many ways we don’t want it back. Economic damage to the housing sector has sent children to Australian universities. The idea of ​​not sending – I don’t think it’s a major issue in our education sector.

“The message they should have gotten is that they need to diversify away from the Chinese market, which is only reinforced by further economic stress in the Chinese market.”

Regarding Evergrande, which continues to starve defaults, Schubridge says emergency bond payments made “by their skin” do not stimulate confidence that they will get out of the $ 400 billion debt hole. I did.

He is confident that it will collapse because there is no financial support or burden for real estate developers to float.

“Chinese authorities and Evergrande leadership are confident that they are seeking a lot of benefits from various investors and others to mitigate the decline, but it is clear that Evergrande does not seem feasible. “He said.

Mr Schubridge said the Chinese government is likely to allow the slow collapse of the Evergrande.

“As a company, you usually think that there are many divestments and restructurings and many creditors will lose money-it is in most other parts of the world with such suffering businesses. It will happen, “he said.

“But we are looking at the controlled exit of Evergrande, and the goal of the Chinese authorities is to make it take some time to relieve the shock.

“Evergrande is like an airplane that doesn’t fly anymore because it’s on fire. The impact depends on whether it crashes or is forced landing and burns out on the runway.”

Initially published as follows China’s $ 82 trillion hit on real estate industry could impact Australia

Evergrande: China’s $ 82 trillion hit on real estate industry could impact Australia

Source link Evergrande: China’s $ 82 trillion hit on real estate industry could impact Australia

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