Much of the financial world is abuzz about Chinese property giant Evergrande’s failure to meet its massive debt obligations and the effect it may have on China’s economy and international markets. That certainly matters, and my sense is that the shock is likely to be significant and the impact unlikely to be brief.
As the world waits to see whether the Chinese Communist Party (CCP) considers Evergrande to be “too big to fail,” this moment should serve as a broader warning about false assumptions and the cost of reckoning when reality can no longer be suspended.
So many worthy questions come from this. If Evergrande is too big to fail, is the CCP also too big to fail? Or, if Evergrande is allowed to fail, is it part of a broader CCP regime plan to divorce itself and insulate the rest of the country from the world’s largest construction and housing bubble? If the CCP has a plan to divorce itself from this bubble, shouldn’t responsible governments in other countries have a plan to divorce themselves from the CCP?
Evergrande is the perfect metaphor for the most erroneous assumptions about the strength and durability of the CCP regime governing China. Evergrande followed a “Field of Dreams” (if you build it, they will come) mentality when it comes to investment and management of property assets in China. Given China’s population and scale of foreign investment, you can just keep building more, hiring more, and borrowing more for “eternity” and achieve “greatness.” Evergreen wasn’t subjected to the generally accepted accounting, transparency, and regulatory standards with which even midsized corporations in “normal” nations comply.
It now stands out as the largest example that China playing by its own rules has consequences, for China but also for many others who have unwisely tethered their investments to the myth of China’s inevitable, eternal rise.
In fact, it is right there in the company name: Evergrande is the English rendering of 中國恆大 (Zhongguo Hengda). The first two characters 中國 (Zhongguo) are the colloquial name of the country, China (Middle Kingdom). The remaining two characters 恆大 (Hengda) can be interpreted as eternal greatness. Taken together, the expression becomes “China’s eternal greatness” or “China is eternally great.” What a perfect name for this uber-nationalist time in China’s political evolution. And in true Maoist tradition, if one simply says it over and over, it must become irrefutable and universally accepted truth.
Any student of Chinese history knows that no dynasty was eternal. There were ups. There were downs. There were Three Kingdoms. There were more kingdoms. There was greater territory, but mostly smaller territory. By far the largest territorial dynasties, and the only ones to contain all (Yuan, 1271–1368) or nearly all (Qing, 1644–1911) of the territory currently claimed by the People’s Republic of China (PRC) were Mongol and Manchu, technically not even Chinese. But one thing all dynasties had in common was eventual surrender to a new regime. And yet, much of the world has chosen to suspend disbelief (and common sense) by playing along with myths perpetuated by the communist leadership and its international cheerleaders that somehow the current regime will escape this fate.
Pause for a moment to take in the rich irony of a company named “China’s eternal greatness” amassing gargantuan debts, failing to pay, and entire high-rise developments being demolished due to chronic vacancy. Nothing eternal or great about that. The same can be said of the Chinese regime.
It’s too soon to tell what will become of Evergrande as a corporation. Government bailout seems unlikely at the moment, but should it break up or collapse, the consequences will be more than economic. The image of “China’s eternal greatness” collapsing or breaking apart is a powerful one in the Chinese language world.
It could be a prophetic message that the Chinese communist regime that destroyed the cultural foundations of past success has now lost the Mandate of Heaven. Surely Xi Jinping fears nothing more than this.
