Editor’s note for Monday, September 20, 2021

My thoughts today:

From Johannesburg to London, Mumbai to New York, the question on the minds of many people around the world this Monday morning was: Is China’s enormous — and highly indebted — real estate firm Evergrande about to go down, and spark a financial rout and crisis, like U.S. investment bank Lehman Brothers did in 2008?

Party in answer to that, Patrick Chovanec, a long time observer of China’s economy and politics, says there are “three immediate possible outcomes to the Evergrande crisis:”

1) The Chinese government allows Evergrande to fail while containing the panic and insulating the rest of China’s economy.

2) The Chinese government loses control of the situation, contagion takes over, and China finally faces a broader financial crisis.

3) The Chinese government papers over the situation, socializes the losses, and pretends the problem has gone away while I actually festers and grows worse.

The outcome in the past has, for the past decade or so, always been #3. Will this time be different? The truth is, nobody knows. Least of all the people in charge.

Bill Bishop of the Sinocism newsletter concludes that “we have a big mess with a lot of people losing money but not one that is going to cause a systemic financial crisis inside the PRC.”

Whatever happens, it’s unlikely to be pleasant for Evergrande’s leadership team, especially founder Xǔ Jiāyìn 许家印 (aka Hui Ka Yan).

Xu figures in Desmond Shum’s new book Red Roulette, flying his private jet to Paris empty because he wanted to play cards with his buddy who was going on the same trip but in his own jet, and contemplating the purchase of a $100 million yacht. Better known by the Chinese public is Xu’s appearance at the 2012 “Two Sessions” political meeting wearing an ostentatious gold Hermès belt, which went viral along with photos of other business and political leaders in expensive foreign brand name clothing.

2012 was the last hurrah of the high-rolling decade before Xi Jinping took control. There are no photos of people in expensive clothing at political meetings any more. And Xu’s life as he knew it is probably over.

No one in Evergrande’s management team can be sleeping well right now. Even before any official moves against them, there are signs of their downfall: Over the last few days, a purported leak (in Chinese) of details of highly luxurious hotel requirements of Evergrande executives has been circulating on the Chinese internet: the preparation is being made for their upcoming punishment.

Our word of the day is Evergrande Group (恒大集团 héngdà jítuán). We’ll have a profile of its founder Xu Jiayin for you tomorrow in the newsletter.

Upcoming events:

• September 22: On China trade policy, states want more cooperation, less confrontation
• September 30: Q&A with Kai-fu Lee, technologist, investor, and co-author of AI 2041

—Jeremy Goldkorn, Editor-in-Chief