“Stay away from China. At least for a while." Cathie Woods, the mythical head of Ark Investment, who stands for traditional managers such as Elon Musk for car bosses, agreed with George Soros, traditional top guru of the world of finance who has just judged the choice of "a tragic mistake". BlackRock to inaugurate an investment fund aimed at the Chinese public which, moreover, responded with enthusiasm: 111 subscribers in just one day. Meanwhile, products linked to the second largest economy on the planet are flocking around the world. Vontobel, for example, it is currently launching an actively managed certificate which allows for the first time to enter the Chinese A-share market through the New Vision Index which includes numerous leading companies in the Celestial Empire which possess, according to the presentation, "solid fundamentals and which, despite the government's regulatory interventions and the high volatility of the market, could benefit from the recently launched fourteenth five-year plan”.
In short, seen from the world of savings, China appears as the great unknown, that is the banana peel on which the edifice of world finance can slide. Or the giant to bet on again, trusting that the recent anti-market initiatives promoted by President Xi in the name of common welfare are not destined to jeopardize the progress of what is in any case the second largest economy on the planet, the factory of things the planet cannot do without. As, moreover, Cathie Wooods continues to be convinced, at the helm of that Ark Investment which has played a leading role in the discovery and valorisation of Chinese Internet jewels. “I don't intend to abandon China – she explains – because there are still too many talents and too much desire to grow there to be repressed. But we are facing a revision of values guided by politics that can cause big surprises”.
The chronicle offers many hints in this direction. In recent months, after the abrupt stop to the listing of Ant group, Alibaba's leverage, anti-profit moves have multiplied. There has been a sharp crackdown on Didi, the Chinese Uber punished for not respecting privacy. Private schools, a billion-dollar business, have been brutally downsized. And the same is happening to the gaming giants, guilty of spreading the "opium of youth" who are only allowed three hours of video games a week.
And so, in an attempt to escape President Xi's ax, companies are offering themselves to indigestible behavior, almost against nature for the big names on the US stock exchange. Piduoduo, the e-commerce giant, announced huge investments in physical commerce, supporting small commerce.
"It is a tax - said Woods - paid to please the authorities". As well as the $15 billion (two-thirds of profits) paid by Tencent and Alibaba in “activities for the common good” or investments of JD Flowers in the logistics of second and third level cities, those forgotten by the development of recent years.
All initiatives with very low profitability that make the men and women of Wall Street shiver who grew up on bread and the search for profit. Hence the doubt: is this a definitive turning point or, once the pitfalls of the next party congress have been overcome, will new priorities be established? That is, China, which for twenty years was the land of the most unbridled liberalism, he will be a communist again or knocks on the door a more egalitarian society, destined to give voice to the middle classes?
This is one of the questions circulating on Wall Street together with another question, more disturbing and dramatic. It is consumed these days, in fact, the collapse of Evergrande, the real estate giant led by what, until a year ago, was the richest man in China: Hui Ka Yan, credited with assets of 34 billion dollars, grand patron of Chinese football. But he was a giant with feet of clay, raised on an advance-based sales formula. The families paid the full amount due for the house at the time of booking, even before the work began. In this way, thanks to the financial leverage, Evergrande was able for years to multiply its turnover and extend its activity into other businesses as well, starting with stock market speculation. An electric car start-up launched with money from savers, for example, has reached a billion-dollar quotation even before having produced a single car.
The system, alas, went into crisis when the credit companies, at the invitation of the central bank, wanted a year ago to see clearly in the house of cards built by Evergrande, with debts towards suppliers.
Hence the start of a crisis that seems to have come to an end: Evergrande accuses about 100 billion of debts and is unable to complete 778 real estate projects in 223 cities. Compared to money already paid by thousands of families who are in debt to pay for the house. A disaster that has already infected the competition, which adopts the same methods, and the bond market where Evergrande bonds trade at 30 percent of the nominal value. Will the system survive this crack? The drain will certainly be heavy, given that real estate represents about 38% of the Dragon's GDP. And this is it the mine that disturbs Wall Street's sleep. In addition, of course, to those of Xi.
