Evergrande, power China cuts and crypto-ban raises growth prospects
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EVERGRANDE, a big debt-saddled property developer in China, the banning of cryptocurrency transactions and growing power cuts in the world’s second biggest economy are causing jitters in international markets, analysts said yesterday.
Evergrande warned last week it could not meet interest repayments on its $300 billion (R4.5 trillion) debt.
Meanwhile, on Friday, China’s central bank announced all transactions and mining of crypto-currencies were illegal – the country is one of the world’s largest cryptocurrency markets and the Bitcoin price slid by more than $2 000 on Friday after the announcement.
The Bitcoin price was trading 1 percent higher at $43 642.60 yesterday afternoon.
Also on Friday there were reports that power rationing and forced halts to factory production in China were widening – there were power curbs in 10 out of 23 provinces amid electricity supply issues and a push to enforce environmental regulations.
Vunani Capital Partners chief strategist and economist Johann Rousouw said the global economy would be impacted indirectly by these factors, either in terms of international trade or in terms of investor sentiment and in the pricing of securities.
He said markets were jittery about Evergrande as, notwithstanding the debt, the systemic risk of it defaulting might see it become a catalyst for a market correction.
Flagship Asset Management Global Portfolio manager Kyle Wales, however, said that they believed the Chinese government would stand in for the Evergrande debt sometime during the next 30 days, when the debt repayments became due.
Wales said there had been an increase in the risk of investing in China since it began tightening regulation of its internet businesses about last November, but on balance, “there remains more upside than downside”.
He said about 50 to 60 percent of the regulatory changes in China were about bringing it in line with international regulatory standards, 20 to 30 percent were aimed at achieving broader societal ends and to boost social stability, while “only about 10 percent is of serious concern in our mind”.
Wales said they had always worried about regulatory risk to cryptocurrencies globally, and China’s recent moves “didn’t surprise us enormously”.
He said China’s energy market, traditionally coal-based, was likely to remain volatile as it transitioned to cleaner energy sources.
China’s economy grew slower than had been expected by many economists in the second quarter of 2021, by 7.9 percent year-on-year, slowing sharply from a record 18.3 percent growth in the first quarter, due to a slowdown in factory activity, higher raw material costs and new Covid-19 outbreaks in some regions.