US Plans to Create State Department Task Force to Monitor China – 25/09/2021 – World

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​This week, a company hitherto unknown to most Brazilians entered the world’s media lexicon: Evergrande. The venture was founded in 1996 in Guangzhou, southern China, and the founder, Xu Jiayin, has been on China’s top ten richest men list for years. Evergrande’s activities consisted of mapping and acquiring land, developing large civil construction projects and using the buildings themselves as a form of payment to the lot’s owners, while the remaining units were sold to finance the continuation of the work.

The megalomania became apparent as the company sank into debt. She began having trouble selling the additional units she was building. Thus, it generated letters of credit with promises of interest well above the market, raised more and more buildings to remedy old debts (leaving more damage to the next project) and accumulated liabilities that, it is estimated, today reach US$ 300 billion, the equivalent of almost 25% of all Brazilian GDP last year.

According to Caixin magazine, the company has developed several methods to hide the leaks. She disguised debts as acquisitions and unpaid stocks, manipulated balance sheets and entered into loan agreements with high interest rates abroad to make up her annual cash flow.

Chinese government tries to measure the size of the problem

The Chinese developer’s warning that it would not be able to pay the debts lit the warning sign for the risk of default. Markets despaired over the possibility of a ripple effect on the world economy similar to the fall of Lehman Brothers in the United States in 2008. In China, regulators maintained a cautious silence.

Local analysts speculate that the government has no idea of ​​the extent of the problem and is groping for possible solutions that protect the market, but send a signal of austerity and low tolerance to repeating mistakes made by Evergrande.

A partial answer came on Wednesday (22). The Chinese Central Bank announced an injection of ¥120bn (about R$98.4bn) into the banking system in reverse repurchase agreements (when the monetary authority issues bonds linked to an agreement to buy them again in the future at a price pre-fixed).

The company also announced the payment of interest on a bond maturing, in the amount of US$35.9 million (R$189 million). The measures seem to have calmed the spirits on the stock exchanges and even the possibility of nationalization of the company is being speculated. However, the risk of bankruptcy remains, and the Chinese government has urged local governments to prepare for the developer’s collapse.

Why it matters: The collapse of Evergrande does not pose as much of a risk to the global financial system as that of Lehman Brothers. The Chinese economy is not very integrated with the rest of the world, the renminbi (the national currency) is not fully convertible to the dollar and the political system is capable of containing, at least in the short term, the fury of those who defaulted (there are reports of protesters arrested and monitored by the local police). This does not mean, however, that Brazil is immune from risks if China lets the developer go bankrupt.

As Evergrande has more than 1,300 projects and nearly 160,000 direct employees, the company’s possible downfall will surely take away a slice of China’s GDP. The slowdown in the civil construction sector, which accounts for 25% of the national GDP, may also be reflected in Brazilian iron ore sales, which represent 32% of exports to China last year (equivalent to US$ 20.5 billion ).

what also matters

Xi Jinping does not usually speak at the UN General Assembly (the first and only time was in 2015). However, with the pandemic and the possibility of sending recorded speeches, the Chinese leader participated in this year’s edition with bold promises. The biggest one was the commitment not to finance new coal plants abroad.

“China will increase support to other developing countries in producing green and low-carbon energy and will not build new coal-fired energy projects abroad,” Xi said.

This is a grand statement. In order to respect the limits negotiated in the Paris Agreement, China started to reduce the use of fossil fuel in the national energy matrix, but compensated with the construction of plants in nearby countries, within the Belt and Route Initiative.

It is estimated that 70% of all coal plants built globally have been at least partially financed by the Chinese. If carried forward, the announcement could reduce 200 million tons of CO₂ emissions annually, but, on the other hand, generate a loss of US$ 50 billion (R$ 264 billion) with the cancellation of more than 40 projects already in progress.

The United States plans to create a task force and hire 20 to 30 State Department personnel dedicated solely to monitoring China. The news was published by Foreign Policy magazine, which revealed the intention of the American diplomacy to also increase the number of officers dedicated to the subject in several embassies. They would be tasked with observing how Beijing relates to other countries.

According to the publication, the initiative, which earned the nickname “China House”, will guide diplomatic cooperation and military relations between the two nations. Initially, the State Department hopes to select officials already working on China-related issues at other government agencies. The idea, however, is not unanimous internally.

A similar initiative was spawned in the Trump administration in 2019. At the time, former State Department envoy for East Asia Susan Thornton said that deploying officials to report on Chinese multilateral ties in various parts of the world would give rise to “all kind of exaggeration and distortions about Chinese activities.” She left office, but negotiations continued, and the CIA itself began to structure a specific team to deal with Chinese espionage.

keep an eye

The week in China was marked by the celebration of the Mid-Autumn Festival, an important date on the national tourism industry calendar. Data revealed by the CTip platform, the Chinese version of, show that the displacements were positive, although the pandemic continues to impact people’s leisure decisions. According to the portal, hotel reservations grew 20% compared to 2019, and car rentals, 77%. Even so, 56% of all trips took place close to tourists’ homes, an indication of the population’s caution with new outbreaks of Covid plaguing specific parts of the country.

Why it matters: When projecting what the post-pandemic world should be like, many companies in the tourism sector look to China. Perhaps the comparison is not so useful, considering that the country remains closed and with a zero tolerance policy for Covid cases, while the rest of the world is moving towards a more flexible approach. However, the sign that people remain fearful of displacement even when the pandemic is virtually no longer an issue shows how difficult it will be to negotiate tourism’s return to pre-Covid standards.

to go deep

  • China prides itself on having non-intervention as a basic principle of its diplomacy. In this article for Foreign Affairs, Wilson Center researcher Charles Edel and former US National Intelligence Council official David O. Shullman challenge this stance and argue that China may be, directly or indirectly, financing the rise of regimes. less democratic and the breakdown of institutions. (porous paywall)
  • New regulations, cancellation of IPOs, imprisoned celebrities, control of video game use… The news coming out of China this year indicates a resurgence in several areas of daily life in the country. In this article, the Wall Street Journal argues that this may all reflect an attempt by Xi Jinping to restore the nation’s fundamental socialist values ​​and create an entirely new alternative to Western capitalism. (free, in english)
  • Chinese fast fashion giant Shein is a worldwide phenomenon, selling exclusive pieces at prices much lower than those practiced by renowned brands. But all this comes at a cost: the Sixth Tone reports the appalling working conditions of the couturiers who produce these clothes, subject to minimal commissions, long hours and unhealthy work spaces. (free, in english)
  • In celebration of the 72nd anniversary of the founding of the People’s Republic of China, the Chinese embassy in Brazil will hold an online event with performances from the Beijing Dance Academy and the Ballet Paraisópolis. This year’s theme is “Corações Juntos, Pertos Unidos”, and the performance can be followed live this Saturday (25), at 11:00 am, on YouTube. (free, in portuguese)