New problems in the Chinese real estate market are lowering Asian stock indices
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Today, January 8, leading stock indices in China and other Asian countries fell after reports of new problems in the Chinese real estate market. The Shanghai and Shenzhen exchange indices fell by 1.4% and 1.8%, respectively, Hong Kong’s Hang Seng lost 1.9%, the Korean Kospi – 0.4%, and the Indian Bombay Sensex – 0.9%. Even the Australian ASX 200 index fell – by 0.5%. This is how the markets reacted to reports of the detention of another top manager of a troubled Chinese development company Evergrande Group and the bankruptcy of the management company Zhongzhi Enterprise Group, associated with the real estate market of the People’s Republic of China.
Shares of Evergrande’s electric vehicle technology unit, China Evergrande New Energy Vehicle Group, fell 20% today after messages about the detention of its executive director and vice-chairman of the board, Liu Enzhou. Authorities and the company did not disclose the reason for the detention, speaking only of “suspicion of illegal activities.” Evergrande crisis continues since 2021, when it became known about the serious financial problems of the holding with debts of $332 billion. At the end of September, it became known that the founder and chairman of the board of directors of the group, Xu Jiayin, was detained by the police and is under investigation.
Last Friday Zhongzhi Enterprise Group reported about filing a bankruptcy petition with the Beijing court. In November, Beijing police started investigation into Zhongzhi Enterprise Group after the company reported about its insolvency, revealed as a result of a shortfall of $36.5 billion, and debts that could exceed $64 billion. The situation with Zhongzhi Enterprise Group’s business began to deteriorate in 2019 amid tightening government regulation of the financial sector. The company’s problems were aggravated by the protracted real estate market crisis, which led to the collapse of several large Chinese developers.
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