airlines have canceled flights to la paloma in the canary islands, and full cannick explosions and the russians intensify. 3 more times have been evacuated. the firefighters is about to pull back from clean up, work in to do okay. the volcano 1st erupt says on a sunday, quite a gas ash above it is not the biggest. it's been the vs. governance is probably the severe whatever it takes to resolve a truck driver. shortage. just cause delays of critical supplies are being used at filling stations after several. we're forced to close. the lack of drivers is also caused widespread disruption to britain food sector. another 90000 drivers needed to meet a national shortage. ah,

this is al jazeera, these headlines phases of climate protests of taken to the street to cities across germany, just 2 days before the country goes to the polls. climate change as well. the horses topics in the sundays election. if there's one other thing that this pandemic has shown us, it is that the climate crisis has never once been treated like an emergency. it is clearer than ever that no political party is doing close to enough. but it's even worse than that. even their proposed commitments are close to being align with what would be needed to fulfill the page agreements. council loony as former liter colors push them all has be released from italian detention. he was taken into custody by police in san antonio on thursday. st accuses freedom of sedition for a 2017 independence ref renden, which was deemed illegal by its course,

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ah, the 2nd largest property ever grant is in deep financial trouble. banks invested buyers and suppliers are all effective. so what would a possible collapse of this company mean for china and for the world, this is inside. ah, ah hello, welcome to the program on kim vanelle. fears that want to chime is biggest,

probably developers could default on it's dead, a rippling through global markets. the vast ever grand group has outstanding debts of more than $300000000000.00. building work on many of its projects has stopped and several investors have stopped getting paid. on friday, the company entered a 30 day grace period to make an $83000000.00 interest payment. after missing a deadline, the default of santa large company would be unprecedented for china and could send the country's outsized real estate market free for the firms woes have been compared to the collapse of the lehman brothers group. and the u. s. that proceeded the 2008 financial crisis ever grants. financial troubles are rooted into decades of huge borrowing. the company took out several loans to rapidly grow its real estate portfolio and expand into other sectors like health care and finance. it made millions of people homeowners in china. it's projects sprang up and every province selling appointments, years before they were built. but in august of last year,

the chinese government imposed you borrowing limits to crack down on debt and ramen and inflated property market. with the grown of ours pandemic pushing down sales. the heavily indebted firm began selling of assets at large discounts that further alarmed investors and since shares plunging. ah, let's introduce, i guess, in london we have garrath lever, senior economist and capital economics in beijing, vic to go check the best su child university and also vice president at the center for china and globalization. and in old orchard beach, that's a town and main of the us, adam hersh, visiting economist at the economic policy institute. very well, welcome to you all. let's start to make sense and beijing. mr. gow, how do you think this is going to play out? is ever grand destined to default?

well, 1st of all, ever grants. problem right now is one of the biggest financial problems in china. for many a yes. and the company, which is one of the largest property developers, and also diversified in too many other sectors, has accumulated huge amount of indebtedness. however, allow me to emphasize that the debt incurred to buy ever grant is mostly a debt in itself, is not reproduced into derivatives. as what was the case in the lima brother financial crisis. in that sense, the ever growing debt situation is very, very different in many, many important ways compared with the international financial crisis breaking out in 2008. i hope china will be able to put a good handle onto this major situation, either through bankruptcy,

offer all major restructuring. and it is not going to be just one single restructuring because ever grant has operations almost everywhere in china. so on the provincial basis, i'll talk in about more than 30 probably show units of bankruptcies. so you are talking about a major financial situation and i hope it will be worked out even though it will be very painful in the process. ok. later i had another i'd like to bring you when do you agree with that assessment? what's your take on where things are right now? i mean, every grand missed his deadline to pay this dollar bond coupon payment with some $8384000000.00. obviously. now there's, there's a 30 day grace period, but what does that say to you about where this is heading? yeah, i think some kind of default of every grand and bankruptcy is almost inevitable if it's, if it's struggling to pay these coupon payments with tens of millions of pounds.

it's got much bigger principal payments due early next year, which you know, which kind of 10 times the amounts if it's struggling. now, i don't see how it's going to me. it's going to survive so much longer. i think the big question then is, is what kind of repercussions are off a chinese economy in the world economy? i think the chinese government, you'd be quite happy to see every grand go bus is made quite clear that it wants to inflict some pain on property developers of been them over speculating and, and breaking the rules. but it also wants to ensure that the chinese economy, the chinese financial system, gets through this case if they do allow grants get bust, expect a lot of support for the broader economy and financial system to make sure that we don't have a full blank crisis item hers in maine, we spoke earlier, we reported earlier about the, the huge borrowing that has gotten the company to this point. what other effect is, has been at play o r a play here?

yeah, i think it's important to keep in mind that this huge over and deadness of ever granted is a symptom of problems in china's financial system. and never grant is not the disease and of itself. and we should be clear on what's happening, the financial distress, the ever grand finds itself in now, is a deliberate choice of policy makers that began tightening down my property developers in the real estate sector. last year issuing the 3 red lines to guide the de, leveraging across the sector. so it's very much in and by a deliberate choice that chinese policymakers and financial regulators are, are moving ever grand towards this restructuring. i think the question that is out there is whether regulators really have the wherewithal to understand what all the linkages are that counter party risks, the contingent liability risks from

a default or even an orderly work out of ever grant steps and our policy makers willing and able to make the kind of tough choices that they've been putting off for decades while china has grown so overland. and before we move on, talk to me about some of those difficult choices. what do you mean by that? well, you know, china's growth has really been driven by the real estate sector over the past couple years. and they local governments, which have been driving a lot of the ass off balance sheet debt accumulation, particularly since the after the, the great recession are extremely tied up with a real estate sector from the revenues that can be raised from land leases. so these kind of special interests have been successful and organizing to influence policy makers in beijing against taking the kind of tough measures that are needed

to bring china's financial system under greater credential regulation and under greater control. and it remains to be seen whether policy makers at the center will have the political will to follow through and, and casting off the moral hazard that has been accumulating in the system. sure, victor, girl, i'd like to get your reaction to what mr. her, she said there is the situation that ever confines itself and symptomatic of why the problems in china's financial system. what role or what responsibility should chinese regulate his chinese policy make is have here? well 1st of all, i think the panelist was absolutely right. this one which is still developing is very much of a self inflicted wounds, partially initiated by the chinese regulators for quite

a few years. chinese government, i've been talking about not power chloe more money into the property market. the and the size that the properties should not be for speculation. they should be used by the consumers, for example. and then over the past one year, also the government has significantly cut down the excess of privately owned the property developers to financing of all kinds driving up significantly, the financing cost faced by many of these property developers. and then by imposing red lines just now mentioned the regulators through new regulations, sometimes suddenly imposed, made the financing very, very difficult. and the very high cost. now, in the private market, financing probably will go up to about 15 percent or even more than 20 percent on an annual basis. this is truly

a very heavy burden for these private borrowers. and then you have a lot of 3rd party transactions that is one that created another indebtedness, etc. so eventually you are talking about the whole chain of indebtedness from one party to another party to a 3rd party to a 4th party event next. so eventually i would say the restructuring of ever ground, which is very big coverage, several sectors and evil. if we just talk about their property sector, they find themselves in opperation with a land to possession, for example, in multiple provinces in multiple cities. so the restructuring will be a very located a restructuring, and i think it will require a lot of wisdom and courage and vision on the part of the government regulators. you're talking about the central government regulators and probably your government and local governments, as well as their supply as the finance years,

including banks for example. and the danger is that it breaks up and everyone just rushes into copout peaceful him or herself. and the one point which can make that a bite, much less painful is to do a very overarching restructuring. because if you look at ever ground, it has several listed vehicles. one of them is actually doing quite well. whereas their main flagship, listed to vehicles are really tanking as we speak. so the restructuring part, either through bankruptcy or voluntary or restructuring, especially involving the lenders and the pharmacy as of all kinds, will be a very, very sophisticated exercise. ok, now deaf to utilize the cost to all the stakeholders. it seems that the goal,

like do you have quite an optimistic view? should restructuring happen? i want to come up to you later back in london. if a grand were to default want flow on impact, would that have both in china but also internationally? hey, very much depends on whether they can contain the problems within china. i think one advantage of being a communist state is that you do have a lot more control over your financial system than say for example, the u. s. did ahead of the layman's crisis in 2008. so it means for example, that the chinese government could force banks to continue to lend to each other. so you don't have this kind of them. the big crisis that you did that you did back following layman's that being said, you know it's, it's certainly possible with chinese government trying to click more pain on the property developers that they make a mistake that, that, that, that things aren't can take with in china that you do get a financial crisis in the banking sector that you do get property develop,

who's going going to the wall and the people losing confidence in the property market and not buying property. and you do get a big hard landing if the chinese economy. then i think there's a couple of avenues where other countries will be affected. first of all, you'll get big falls in global stop markets and reduction risk appetite. so countries the dependent on capstream phase to fund their external deficits. again, to triple check, he's the obvious candidate, hey, but there's a couple of other places in south america. you'd also see big falls in commodity prices. so countries in africa, less than america and also a straight would also be caught by that. but assuming that there is some kind of pass through from china's property sector to the broader economy than other countries in asia, the exported loss of china would also be affected. so it is potentially quite big if things do go wrong from here. ok, let's pause for a moment to take a look at how ever grands 300000000000 dollar crisis compares with other debt

defaults. so in 2001 argentine it defaulted on a record. $95000000000.00 in sulfur and bonds. its economy shrunk by 20 percent, and that led to mass unemployment riots in 2008 the new based lehman brothers. as we've been saying, that investment declared bankruptcy after owing $600000000000.00. and that led to the global financial crisis, which then caused greece to about $200000000000.00 to the u. n. t. the i m f. it was given successive bailouts. i'd like to come back to you and in person in maine . we heard there from, from guarantee earlier talking about the differences between every grant and the lehman brothers collapse. we have though, heard european n u. s. banks trying to reassure, reassure their investors that their exposure is limited. is it? well, certainly the nature of china is financial system being relatively close has limited exposure to external players. i think that we want to keep in mind the political

context under which this crisis is unfolding. she didn't king is preparing to do something that is unprecedented in the modern history of china, which is to stand for a 3rd term as, as pertinent sharon man and president of china. and it's going to be essential for him in the run up to the 20th party congress next year to continue demonstrating his position of control or perception of his control in this crisis. whatever grand is really jeopardizes that image that she gene king is trying to project. now, as they think about this, this is a great incentive for intervening in for the crisis. and to make an example of never grand. but as with all financial crisis,

what we'll see is that the, the regulators, even if they think they have a handle on what ever grants, financial positions are in the web that it's created with throughout the, the property and financial and non financial economies in china. and around the world, they really don't have an understanding of that. that's something we can take for take for granted. and so although there's going to be a willingness to intervene, there remains open question whether the policymakers regulators are going to be able to do enough. and fast enough to, to stop the contagion. once every grand starts restructuring, real estate prices in china and across the age of region are going to drop outside of ever grand. every company that has liabilities backed up with

real estate collateral are going to start to be seen as higher risk. and under capitalized. this is going to put a damper on, on accessing to credit for all kinds of firms. households that have been in china that have been putting all of their life savings into real estate investments because there are few other options to save in. in china. economy are going to find themselves under water just as china is trying to make the transition from investment lay growth to consumption like growth. just as china is trying to launch a new campaign for common prosperity in the run up to. she's infection mentioned at the 20th party congress. there's going to be a tremendous amount of political pressure. i want to pause with. i want to see there, we will come back and talk about presentation things,

push for common prosperity a little later. but before that, i'd like to come back to you to go. it's been reported that in a way this could have been foreseen. people reports that china, in essence has 2 property markets, one and major cities where prices is right. prices are rising another in smaller cities where over supply has led to downward pressure and that perhaps ever grand should have foreseen this. do you see it that way? could this have been foreseen? well, if you talk to different property developers in china, then they have sometimes very different philosophies and forecasts as to how the market will work out in the coming several years or coming couple of decades. on the other hand, i think the megatron is that the chinese economy is still expanding overnight, asian is due increasing and there will be, you know, a need for additional houses. apartment buildings for the hundreds of millions of

migrant workers while now caught in between the urban side of the equation versus the a rural side of the equation. many of the have been working in cities for years, if not even for a couple of decades, where they do not have decent housing to speak of the come, the crammed into a rented apartments in a very crowded way. so the demand is the app and it depends on how the chinese government, the corporate, the developers, etc. the pregnancy is really come up with a more coherent view as to how much weight they want to give to property development. as i mentioned, the government in recent years has adopted a very negative view about property market. they do not want people to buy extra apartments, for example. they want to limit the landing to the buyers. they want to emphasize that the properties should not be used for speculative purposes. this should be

used just for your a bolt or housing purposes, etc. so i think there is a lot that we can really re jungle or given the need for greater openings ation in china, greater need for apartments and buildings of all kinds in china. but also they need to restructure in what kind of properties you're talking about. and then i would say one major hurdle is that for whatever reason, right now, the excess to finance by private diverse developers is very much restricted, which in itself is very artificial and i don't think this is noble and i hope the government will pay enough attention that they should give equal access to privately owned enterprises or developers, as well as state owned enterprises. the private developers should not be discriminated in terms of access to financing to policies for example. and in that

way, the property market should be more normalized in the macro size, and people can really expect to have stable property market rather than huge ups and ups and downs in the property market. because if the property market, which is one of the pillar industries in china, is tanking the repercussion throughout the chinese economy will be huge. you do not know what eventually it will lead to. how much of a final blow it will inflict on the chinese economy as a whole? absolutely gas liver, about to come back to you on this idea of this thing that's being pushed by seating thing of common prosperity. basically crank down to try and ease inequality by cracking down on technology as well as finance sectors. among others. using ping will want to soften the blow fit for small investors at least will she think allow

ever ground to fail? yeah, this is a very good question because this whole question, or this whole kind of crusade, is it worried about some common prosperity? it doesn't fit very well with the states and much poor taxpayers biting out big property conglomerates that they've gone into trouble for speculation. so it's maybe another reason to suspect another reason to think why the chinese government is likely to go quite tough whenever graham did not show much, much simply towards them. i think it does also bring into a kind of broader point about china's long term economic directory that many of the companies, many of the countries so it makes by dynamic, most productive companies. ah, things are these tech sectors which the government has recently launched a crack down against. now if it's not prepared to allow these companies to, to prosper, to develop, to invest. as these may be looked like the case

a few years ago, then it does kind of bring into question kind of china's florida long term outlook . that some of the companies, some of the countries, most productive companies over income stepped on hard by the government. so it may mean a more more ferris site, but also means less dynamic one, which probably means slow growth in the long run as well. i think that that i'd like to finish with you in beijing. a lot of people bought ever ground wealth management products promised big return, sometimes approaching 12 percent. are there going to be however, this works? are they going to be a lot of individual investors, a lot of mom and pop investors as a known in the west left out of pocket here. last livelihoods last futures. well, unfortunately they will be a lot of pain in the market because of ever grad, if you asked me to speculate, i would say, knows who bought into the culprit bombed by ever grant of all kinds and different

services. for example, most likely will suffer a big head hair cut. many of a suppliers or old accounts payable by over grants probably will suck another big hair cut. now some of the investors will pre paid for the apartment, a different part of jama, depending on which should be talking about, probably will suffer a huge haircut to and for those financial institutions of commercial banks in particular, i hope they are well protected by their discipline. in lending to as ever a grant to stop with and they will suffer, but they will suffer less proportional to other stakeholders involved. there are offering lenders to ever grant because of their vehicle is listed in hong kong stock market. but i hope they are also. ready well protected in the sense the use there is sophisticated legal documents try to identify where risks are and how they

can be protected through pledges or guarantees, etc. we will time my apologies that we won't have to leave it there for time. thank you very much for your analysis. a big thank you actually to all about guess garrath with the to go and adam hush and thank you to for watching. you can see the program again anytime by visiting our website, i'll just or dot com. and to the other discussion, go to our facebook page. that's facebook dot com, forward slash ha inside story. you can also join the conversation on twitter. handle is at a j inside joint for me, kim fidel, from the entire team here. and uh huh. bye bye. for now, the news me. ah

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