Jiangsu Huaxi Group Co., Ltd. was caught in a “run” fiasco. (Video screenshot)
Earlier on February 24, Jiangsu Huaxi Village, known as “the first village in the world” in mainland China, suddenly reduced its share dividends from 30% to 0.5%, and villagers who were worried about the bursting of Huaxi Village lined up to demand a cash payment. In the meantime, rumors that Huaxicun may be bankrupted by a run, and a “the first village can not collapse” online article, on the mainland Internet hot.
In addition to being located in Jiangsu Province, Suning Tesco, the only leading e-commerce company in the A-share market, and Huaxicun, once known as the “No. 1 village in the world,” have three important points in common: first, they were both benchmarks of the private economy; second, they are both in debt crisis; and third, they both introduced state-owned capital and have become the Chinese Communist Party‘s Third, they all introduced state-owned capital and became new waves or bubbles that were broken in the wave of “the state into the people”.
The “first village” Huaxi can not collapse?
The article “The first village” of Huaxi can not collapse” recently spread on the Internet, the article believes that if the asset quality of Huaxi is still good run collapsed, then Jiangsu and even other local financing platforms and enterprises will also suffer a credit hit, a large-scale run will trigger a systemic risk. The article stressed that “especially in this round of semiconductor fever above the largest investment (of) the local governments in Jiangsu, the high amount of government debt is a Time bomb that can explode at any time”, so “Huaxi can not collapse”.
However, the political halo gradually faded Huaxi Village, early exposure has been debt-ridden, deep liquidity crisis.
In 2019, the land media China Business News obtained the meeting notice document of Wuxi Municipal Government on “Huaxi Group is now in liquidity difficulties” to meet to bail out the problem. (Web screenshot)
Ignoring the macroeconomic environment and micro-enterprise operations, the liquidity analysis of Huaxi’s shares alone reveals a clear picture.
In fact, since at least 2017, the debt ratio of Huaxi (Huaxi Village A-share listed company) is as high as 68.97%, and mainly short-term debt. 2018, the Chinese Communist Party has accelerated the pace of “the state into the people,” especially for private enterprises, bank credit is significantly tightened, mainland private enterprises are generally in a liquidity emergency. The mainland private enterprises are generally in a liquidity crunch.
According to the mainland media (original article), in the first quarter of 2019, some media questioned that Huaxi Group’s book monetary funds are only enough to cover about 1/3 of the short-term debt of 20 billion. Moreover, Huaxi Group, the controlling shareholder of Huaxi Village, started to reduce its shareholding and cash out from January 2019. All kinds of financial performance coincides with the rumors that Huaxicun asked the government for money to bail out back then.
In the face of liquidity and other debt crises, it has been questionable in recent years whether the “first village” signboard can still protect Huaxi Village.
In March 2019, the Wuxi Municipal Government “Huaxi Village bailout meeting” rumors eventually died down, the network did not see the Huaxi Village bailout funds on the public reports.
In response to this year’s run on the village, the Chinese authorities have not made any statement to date, seemingly not saving the “first village” of socialism, which they once held up to the world.
The “first village” fell Huaxi Village can not save?
Although the wealth of Huaxi Village nominally belongs to the collective, holding 40.59% of Huaxi A shares (September 30, 2020 Huaxi shares financial data) of the Huaxi Group, 99% of its shares belong to the Huaxi Village Committee; but the Huaxi Village Committee and Huaxi village-related enterprises control has been in the hands of Huaxi Village, the first village secretary Wu Renbao Family.
According to a 2004 study by Zhou Yi, a professor in the sociology department of Fudan University, the available funds at the disposal of Wu’s four sons accounted for 90.7% of the total amount of Huaxi Village.
According to several land media, the development of Huaxi Village is in line with the Chinese Communist Party model, except for the early days when it used to develop industry, after which it mainly used bank loans + land resources for capital expansion. Moreover, although the Huaxi shares on the books are private enterprises, the reality of Huaxi Village is not anymore.
According to the “21st Century Business Herald” reporter understand (original), in the Huaxi Village huge enterprise cluster, at present, in addition to listed enterprises, many large and medium-sized enterprises have completed the state capital holding, Huaxi Village, the village level shares have been less than 30%.
Even Huaxi has set up a wholly-owned private equity company “Yicun Capital” in 2015 and transferred 34.431% of “Yicun Capital” to a wholly state-owned enterprise group established by the Wuxi municipal government in July 2020. “Wuxi Guolian”.
Current affairs commentator Li Linyi said that Huaxi Village is like a microcosm of the Chinese Communist Party’s economic development: in the name of the people/collective, it uses loans, land and other policy dividends to amass wealth, and is in the hands of powerful families. Once the economic crisis hit, the authorities were asked to cover the debts with the golden sign of the “first village” of socialism.
But is the “first village” really unable to collapse today? Li Linyi thinks not necessarily, because the Chinese Communist Party authorities are also deep in debt crisis, they can not protect themselves, may not care about this “first village”.
For example, even Jiangsu province, which will have the second largest GDP in the country by 2020, will not escape the pressure and risk of building up its debt.
According to official data from the Communist Party of China, Jiangsu Province will rank second in GDP and fiscal revenue in 2020, but the province is still not financially self-sufficient, with a fiscal self-sufficiency rate (general public budget revenue/general public budget expenditure) of only 66.2%.
Also according to GF Securities data, as of the end of 2019, Jiangsu Province’s debt ratio was as high as 356%, ranking second among the country’s provinces and cities. Debt ratio is an important indicator of a region’s debt risk, which is the ratio of debt balance to the government’s comprehensive financial resources.
According to Sohu Finance, Zhang Ming, deputy director of the Institute of Finance at the Chinese Academy of Social Sciences, disclosed at the Economist Forum on Jan. 10 that local debt will default this year, and that nine provinces and municipalities directly under the Central Government currently have debt service payments exceeding 50 percent of their fiscal revenues for the year, making it basically impossible for these places to pay their own debts. Zhang Ming did not specify which nine provinces may trigger a debt mine.
To make matters worse, the actual debt of local governments in the Communist Party goes far beyond the “local debt” mentioned by Zhang Ming, and includes various forms of hidden debt such as financing platforms and government-guided funds.
For example, China Newsweek (original article) revealed that the off-balance-sheet financing model in Shuyang, Jiangsu Province, in which private enterprises were used by the local government as “heads” for loans, resulted in private enterprises being unable to pay back the money and on the verge of bankruptcy. Reports indicate that the Shuyang County government used loans from private enterprises to raise about 3 billion yuan in three years, starting in 2009.
Similar examples are the CCP’s hidden liabilities, which have brought amazing political achievements and wealth to CCP officials and powerful people, but left huge debts and risks for private enterprises and taxpayers.
Li Linyi pointed out that the private economy has always been the target of the CCP’s oppression and harvesting, especially since Xi Jinping came to power to support the public economy and promote the “advancement of the state and retreat of the people”, the survival of private enterprises has become more and more difficult. The Huaxi enterprise cluster has long been eaten up by state-owned capital, plus the Internet rumor that the Huaxi Wu Renbao family is not to Xi Jinping’s liking, so there is an empty signboard of “the first village” left, whether Xi Jinping is still willing to pay for it, remains to be seen.
The former number one private enterprise in mainland China finally fell into the hands of whom
Compared to the “No. 1 village in mainland China”, the “No. 1 private enterprise in mainland China” has been more explosive.
On February 28, Suning’s Jiangsu Football Club announced that it had ceased operations, and then the club’s owner, Suning Tesco, officially announced the introduction of state-owned shareholders.
Suning, one of the leading e-commerce companies, eventually fell into the hands of whom?
Jiangsu Football Club was formerly known as Jiangsu Suning Football Club. Suning also has the famous Italian soccer club Inter Milan, and recently there are foreign media reports that Suning is also negotiating with relevant parties regarding the sale of Inter Milan club. Suning Group took over Jiangsu Football at the end of 2015, and the team’s record has been among the top of the Chinese Super League, and won the Chinese Super League title in the 2020 season.
Under the pressure of debt, Suning was forced to abandon the club, Reuters reported on Feb. 28. Last year, mainland China’s credit debt risk rose steeply, the market worried about Suning debt service pressure, but Suning repeatedly denied the debt pressure, and has twice announced the buyback of bonds issued by the company, but also in December last year to repay a period of ten billion yuan in corporate bonds early.
Founded in 1990, Suning is a representative of the development of private economy in Jiangsu Province. 2004, Suning Tesco listed on the Shenzhen Stock Exchange, becoming “the first stock of Home appliance chain enterprises in mainland China”. 2014, the All-China Federation of Industry and Commerce released the “China’s top 500 private enterprises In 2014, the All-China Federation of Industry and Commerce released the “Top 500 Private Enterprises in China” and Suning ranked first, becoming the leading private enterprise in mainland China.
However, in the deteriorating political and business environment, Suning Tesco’s operations deteriorated and gradually got entangled in debts, and had to sell itself to save itself.
On February 28, 2021, Suning announced the introduction of state-owned strategic investment, Suning Tesco’s former controlling shareholder and actual controller, Zhang Near East, and his holding company, transferred 23% of its shares, for a total price of 14.817 billion yuan, to Shenzhen State Assets Supervision and Administration Commission’s Shenzhen International and Kunpeng Capital.
Although Suning emphasized in the announcement that Suning Tesco does not have a single controlling shareholder, “the company will become a state of no effective controller”, and the shares of Zhang and his concerted action holders will accumulate and remain the largest voting shareholder.
However, according to the announcement, after the completion of the transaction, Zhang and his concerted action Suning Holdings Group shareholding ratio of 16.38%, plus a related party Suning Electrical Group shareholding ratio of 5.45%, the total shareholding ratio of the three parties is 21.83%; while Shenzhen State-owned Assets Supervision and Administration Commission’s Shenzhen International, Kunpeng Capital shareholding ratio of 8% and 15%, a total of 23%.
On March 2, the Shenzhen Stock Exchange issued a letter of concern about Suning Tesco’s share transfer and change of effective control, asking Suning to explain whether the shareholding of Shenzhen International and Kunpeng Capital constitutes a concerted action relationship (common effective control person).
However, no matter how the Shenzhen Stock Exchange and Suning concern or reply, can not hide the point that now has the biggest say in Suning Tesco is the “Shenzhen State Capital System”, or that is behind the Shenzhen State Capital Committee.
Suning was forced to “sell” the “state into the people” and then the next city
Suning was forced to “sell”, there may be a variety of reasons, but the most urgent pressure is still the debt crisis.
According to an analysis of Suning Tesco’s financial report by Sina Finance (original article), Suning, one of the leading domestic e-commerce companies, has made profits since 2012 mainly from non-recurring gains and losses (investment income) from structured financing, affiliated transactions and the sale of Taobao shares; the main business sales profit has been a loss except for 2012 and 2018.
The financial report of Suning.com shows that since 2012, Suning Group’s profit mainly comes from investment income such as the sale of Taobao shares and structured financing, and the main sales business is mostly at a loss. (STR/AFP via Getty Images)
According to the data from “Small Debt Watch” (original article), since 2014, Suning Tesco’s net profit (net profit after non-recurring gains and losses) has been negative for seven consecutive years, and the amount of losses in the past two years has been rapidly magnified.
In addition to poor operating results, Suning Tesco’s operating cash generation capacity has also continued to deteriorate. Since 2017, Suning Tesco’s net operating cash flow has turned from a net inflow to a net outflow status, with poor protection for debt and interest.
Last December Suning had repaid tens of billions of dollars of corporate bonds days ahead of schedule to boost market confidence, but Reuters reported that Suning’s controlling shareholder Zhang Neary and his son had pledged all the equity they owned to Taobao.
Moreover, Suning Tesco’s fundraising inflow has significantly decreased since last year, and its fundraising cash flow has turned from a net inflow to a net outflow of -$3.013 billion, indicating a deteriorating trend in the external financing environment. In particular, on January 30, 2021, Suning Tesco released a preview of its 2020 results, showing a net loss of 6.087 billion yuan to 6.587 billion yuan for Suning Tesco’s net loss, signaling that Suning’s market capitalization may continue to decline and that financing difficulties will intensify.
Although Suning Tesco’s gearing ratio was 61.55% as of the end of the third quarter of 2020, which is not too high, current liabilities accounted for 81% of total liabilities, with an unreasonable debt structure. As of the end of the third quarter of 2020, it had 30.837 billion yuan of monetary funds on its books, of which more than 20 billion were restricted funds that could not be used to cover the short-term liabilities of 32.713 billion yuan due within the year, and the short-term debt service risk was quite high.
According to the data of China Honest International (original article), as of February 10, 2021, Suning Electronics, the major shareholder of Suning Tesco, has a total of 17.2 billion yuan of corporate bonds due and sold back during the year, plus the commitment to buy back bonds.
On February 28, Suning sold 11.35% of its shares in Suning Tesco for about 7.3 billion yuan, which means that even if Suning sold its controlling stake in the company, the proceeds would not be enough to repay the debt due during the year.
With poor operations, no access to financing, and tens of billions of dollars in debt looming, Suning has very few ways left to get past the debt hurdle.
The introduction of state-owned capital has become Suning’s last choice.
According to public reports in the land media, due to unfavorable business and high debt and other reasons, dozens of private enterprises in the mainland last year, the actual controller was changed to the Chinese Communist Party state-owned enterprises.
According to Li Linyi, Huaxi Village and Suning are the two golden signboards of Jiangsu Province in politics and economy, but now the signboards are not kept, the “No. 1 village” of the Communist Party of China is on the verge of collapse, and the “No. 1 private enterprise in mainland China” is forced to sell itself to save itself, which are all signals of the bleak future of Jiangsu Province and China’s private economy. The future of the private economy in Jiangsu Province and China is bleak, and the Chinese Communist Party, under the pressure of the debt crisis, will probably speed up the harvesting of private enterprises.
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