Evergrande's endgame with Ren Liqian

Fresh out of the studio, Ren Liqian from Wisdom Asset Management, joined us to discuss the fallout from the likely default of Evergrande, a Chinese real estate conglomerate and what it means for the Chinese economy and the rest of the world. Liqian started the conversation with her background and her analysis of the Chinese market specifically in the real estate and technology sector. She debunked the misconceptions of Evergrande from Western media similar to the Lehman contagion during the 2008 financial crisis and explained the likely outcomes of Evergrande if it ever defaults. Last but not least, she shed light on how State-owned Assets Supervision and Administration, a Chinese government body that are working behind the scenes on the Evergrande situation similar to other conglomerates in trouble such as HNA and Huarong.


"I will say that in the end, the Evergrande situation will be similar, particularly to like HNA group. So I think right now they have not filed for an event bankruptcy cases. Yet their hope is still can can muddle through. But in the end, the likely end of Evergrande is going to turn out to be much more similar than people realize." - Ren Liqian

Editor's note: We recorded this conversation in early November, and hence it does not include the recent news on Evergrande's default.

Introduction

  • Ren Liqian, Director of Modern Alpha at WisdomTree Asset Management (LinkedIn, @liqian_ren)
  • Since it is your first time on the show, how did you start your career?
  • What is your current role and coverage in WisdomTree Asset Management?

Evergrande's endgame and its impact to the Chinese & global economy

  • Intro to Evergrande by BL: Evergrande is one of China's largest real estate developers and is a conglomerate, based in Shenzhen and listed in Hong Kong. It employs 200k people and indirectly sustains 380 million jobs. Founded by Xu Jiayin, it made its money through building residential property. The group has invested in electric vehicles, sports and theme parks. It even owns a food and beverage business, selling bottled water, groceries, dairy products and other goods across China.
  • Why is Evergrande as a conglomerate getting so much spotlight as compared to the tech companies in China recently?
  • Can you provide a comprehensive overview of the real estate industry, and the guidelines known as the “three red lines” issued by the Chinese government?
  • Why has the problem exacerbated till now?
  • There are unhappy citizens who are protesting in front of the Evergrande offices in China. How are they affected by the whole situation?
  • What is the Chinese government’s position on Evergrande? They have asked the founder and CEO to use his net worth to pay the current debts.
  • There are similar examples of Chinese conglomerates such as HNA Group, Anbang and Huarong which have encountered similar problems in taking on too much debt with the Chinese government. How did the Chinese government help to resolve the situation for these cases?
  • One thing which the Western media did not cover is the State-owned Assets Supervision and Administration (or SASAC in short) or 国资委 and their role in dealing with the Evergrande issue? Can you elaborate what this agency is and how have they been managing the debacles of these private conglomerates (including HNA and Huarong) with the local provincial governments, for example Shenzhen behind the scenes?
  • Excluding Chinese media, what are the things that the media outside of China get right and wrong about Evergrande, for example, being a contagion similar to the Lehman collapse in 2008?
  • What is the likely end for Evergrande based on the present situation?

Closing

  • Any recommendations that have inspired you recently?
  • Liqian's recommendations: Chinese history & literature books and calligraphy.
  • How can my audience find you?

Podcast Information:The show is hosted and produced by Bernard Leong (@bernardleong, Linkedin) and Carol Yin (@CarolYujiaYin, LinkedIn). Sound credits for the intro and end music: "Run it" by DJ Snake, Rick Ross and Rich Brian and the episode is edited by Geoffrey Thomas Craig.