The company has been taking steps in recent weeks to raise the money it owes to customers, investors and suppliers. Evergrande Real Estate currently owns more than 1, projects in more than cities across China.
The broader Evergrande Group now encompasses far more than just real estate development. Its businesses range from wealth management, making electric cars and food and drink manufacturing. It even owns one of country's biggest football teams - Guangzhou FC. Last year, Beijing brought in new rules to control the amount owed by big real estate developers.
The new measures led Evergrande to offer its properties at major discounts to ensure money was coming in to keep the business afloat. Now, it is struggling to meet the interest payments on its debts. Its bonds have also been downgraded by global credit ratings agencies. There are several reasons why Evergrande's problems are serious. China saves about 50 percent of its gross domestic product.
Access to secondary and tertiary education and universities is rapidly improving. The Chinese middle class is still only at the early stages of growth, so there is enormous potential for further expansion. Beijing is aware of the need to rebalance its economy so that domestic consumption rises and the relative dependence on exports declines. Military spending is growing significantly in absolute terms along with the economy, but thus far the government has limited it to a modest share of GDP in the three to four percent range.
These developments are good news for China and the world, but they also pose a challenge to the United States. As China moves up the value-added ladder, with an ever more skilled workforce and ever more capital at its disposal, Americans will have to increase their capacity to innovate and boost productivity. But if relatively vigorous growth in China is very probable for the next couple of decades, the Chinese still face uncertainties.
How successfully will Beijing deal with a rapidly aging population, which, thanks to a significant degree to its one-child policy, will be considerably older than the U. Will it be able to maintain political stability as a burgeoning middle class and increasing interest-group activity multiply demands on a system with still-limited institutional and economic capacity? Beyond demographics and politics, will China manage mounting environmental stresses?
The record so far, with water and air quality and the supply of arable land all still in decline, is not encouraging. Will Beijing keep military claims on the economy at a moderate level and persist with a foreign policy that has not caused significant friction with other nations?
Not all signs are positive on this score. China has protested U. Given their record of adaptation and success over the past several decades, it would be unwise to bet against the Chinese. The United States and other nations should plan on facing an increasingly capable China. That is in many ways a daunting prospect, but it is a far better one, and richer in promise, than the alternative. David M. The author thanks David Bulman and Sophie Lu for their research assistance.
Photo courtesy of the University of Nottingham. Fall What if China Fails? We economists speculated about when the country would hit the limit of its governance. But the result of increased control by the president is worsening economic opportunities. The flow of lending to private companies in China collapsed after Xi took power, according to Nicholas Lardy of the Peterson Institute.
Funds were, instead, channeled to state-owned enterprises. The state-owned companies place higher priority on serving political leaders than economic efficiency. The most productive opportunities are skipped in favor of the most politically favored opportunities.
The negative effect shows up in miserably poor productivity …. American businesses will find Chinese sale opportunities growing much less rapidly than in past years. On the plus side for companies around the world, China will leave to other businesses great opportunities that it could have exploited.
This is a BETA experience. You may opt-out by clicking here. In these circumstances, a revisionist power may act boldly, even aggressively, to grab what it can before it is too late. The most dangerous trajectory in world politics is a long rise followed by the prospect of a sharp decline.
As we show in our forthcoming book, Danger Zone: The Coming Conflict with China , this scenario is more common than you might think. We see the same thing in more recent cases as well. Rather, they become brash and aggressive. They suppress dissent at home and try to regain economic momentum by creating exclusive spheres of influence abroad. They pour money into their militaries and use force to expand their influence. This behavior commonly provokes great-power tensions. In some cases, it touches disastrous wars.
During a sustained economic boom, businesses enjoy rising profits and citizens get used to living large. The country becomes a bigger player on the global stage. Then stagnation strikes. Slowing growth makes it harder for leaders to keep the public happy. Economic underperformance weakens the country against its rivals.
Fearing upheaval, leaders crack down on dissent. They maneuver desperately to keep geopolitical enemies at bay. Expansion seems like a solution—a way of grabbing economic resources and markets, making nationalism a crutch for a wounded regime, and beating back foreign threats.
Many countries have followed this path. After a fast-rising imperial Russia fell into a deep slump at the turn of the 20th century, the tsarist government cracked down hard while also enlarging its military, seeking colonial gains in East Asia and sending around , soldiers to occupy Manchuria. These moves backfired spectacularly: They antagonized Japan, which beat Russia in the first great-power war of the 20th century.
A century later, Russia became aggressive under similar circumstances. Even democratic France engaged in anxious aggrandizement after the end of its postwar economic expansion in the s. It tried to rebuild its old sphere of influence in Africa, deploying 14, troops to its former colonies and undertaking a dozen military interventions over the next two decades.
All of these cases were complicated, yet the pattern is clear. If a rapid rise gives countries the means to act boldly, the fear of decline serves up a powerful motive for rasher, more urgent expansion. The same thing often happens when fast-rising powers cause their own containment by a hostile coalition. But the more sobering parallel is this: War came when a cornered Germany grasped it would not zip past its rivals without a fight.
For decades after unification in , Germany soared. London, Paris, and St. By , time was running short. Germany was losing ground economically to a fast-growing Russia; London and France were pursuing economic containment by blocking its access to oil and iron ore. Most ominous, the military balance was shifting. France was enlarging its army; Russia was adding , men to its military and slashing the time it needed to mobilize for war. Britain announced it would build two battleships for every one built by Berlin.
But by and , it would be hopelessly overmatched. It then invaded neutral Belgium—the key to its Schlieffen Plan for a two-front war—despite the likelihood of provoking Britain. Its impending decline drove the decisions that plunged the world into war. Imperial Japan followed a similar trajectory.
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