Business

China Is on Edge as Fallout From Its Real Estate Crisis Spreads

Published

1 year ago

August 22, 2023

China Is on Edge as Fallout From Its Real Estate Crisis Spreads

A model Chinese real estate developer in a sector replete with risk takers is teetering on the edge of default. Short of cash, one of China’s biggest asset managers has missed payments to investors. And billions of dollars have flowed out of the country’s stock markets.

In China, August has been a dizzying ride.

What started three years ago as a crackdown on risky business behavior by home builders, and then an ensuing housing slowdown, has spiraled rapidly this month. The broader economy has been threatened, and the confidence of consumers, businesses and investors undermined. So far, China’s typically hands-on policymakers have done little to ease anxieties and seem determined to reduce the country’s economic reliance on real estate.

“What is happening in the Chinese property market is really unprecedented,” said Charles Chang, who heads corporate credit ratings for Greater China at Standard & Poor’s.

For the last three decades, as China’s population surged and its people flocked to cities seeking economic opportunity, developers couldn’t build modern apartments fast enough, and the real estate sector became the engine of a transforming economy. Real estate employed millions and provided a store for household savings. Today, the sector accounts for more than a quarter of all economic activity.

China’s dependence on real estate was lucrative during what seemed like a never-ending building boom, but it has become a liability after years of excessive borrowing and overbuilding. When China was growing faster, the excesses were papered over as developers borrowed more to pay off mounting debts. But now China is struggling to regain its footing after emerging from the paralyzing pandemic lockdowns its leaders imposed, and many of its economic problems are pointing back to real estate.

Chinese consumers are spending less, in part because a slump in housing prices has affected their savings, much of which are tied up in property. Jobs tied to housing that were once abundant — construction, landscaping, painting — are disappearing. And the uncertainty of how far the crisis might spread is leaving companies and small businesses afraid to spend.

Local governments, which rely on land sales to developers to pay for municipal programs, are cutting back on services.

Financial institutions known as trust companies, which invest billions of dollars on behalf of companies and rich individuals, are staring at losses from risky loans handed out to real estate firms, prompting protest from angry investors.

The crisis is a problem of the government’s own making. Regulators allowed developers to gorge themselves on debt to finance a growth-at-all-costs strategy for decades. Then they intervened suddenly and drastically in 2020 to prevent a housing bubble. They stopped the flow of cheap money to China’s biggest real estate companies, leaving many short on cash.

One after another, the companies began to crumble as they could not pay their bills. More than 50 Chinese developers have defaulted or failed to make debt payments in the last three years, according to the credit ratings agency Standard & Poor’s. The defaults have exposed a reality of China’s real estate boom: the borrow-to-build model works only as long as prices keep going up.

As the crisis has worsened, Chinese policymakers have defied calls to step in with a major rescue package. They have opted instead for modest gestures like relaxing mortgage requirements and cutting interest rates.

In an editorial on Friday, the state-run Economic Daily said it would take time for recent policies to take effect: “We must be soberly aware that the process of defusing risk cannot be completed overnight, and the market must give it a certain amount of patience.”

Policymakers have tolerated the fallout of the real estate crackdown because even the companies that are not able to pay all their bills have continued to build and deliver apartments.

China Evergrande, for example, defaulted on $300 billion of debt in 2021 and yet managed to finish and deliver 300,000 apartments out of the more than one million that it had taken money for but not completed at the time of its collapse. Evergrande filed for bankruptcy protection in the United States on Thursday.

But a lot has changed in recent months. Households pulled back on big purchases, and apartment sales plummeted. That shock altered the fortunes of Country Garden, a real estate giant that was once put forward as a model by the government. The company is now anticipating a loss of as much as $7.6 billion in the first half of the year and says it is facing the biggest challenge to its business in its three-decade history.

Country Garden has just weeks to come up with the cash to make interest payments on some of its bonds or join its peers in default. It also has hundreds of billions of dollars in unpaid bills.

These developments have spooked home buyers, who were already wary. In July, new-home sales at China’s 100 biggest developers fell 33 percent from a year earlier, according to data from the China Real Estate Information Corp. Sales also fell 28 percent in June.

Investors worry that policymakers are not acting quickly enough to prevent a bigger crisis.

“I don’t think they have yet found the right solution to solve the problems,” said Ting Lu, chief China economist for Nomura. He and his colleagues have warned that falling home sales and defaulting developers risk a chain reaction that threatens the broader economy.

The fears have spread to other markets. In Hong Kong, where many of China’s biggest companies are listed, confidence has plunged so drastically that stocks have fallen into a bear market, down 21 percent from their peak in January. Over the last two weeks, investors have pulled $7.5 billion out of Chinese stocks.

The real estate troubles are also spreading to China’s so-called shadow banking system of financial trust companies. These institutions offer investments with higher returns than standard bank deposits and often invest in real estate projects.

The latest troubles surfaced earlier this month. Two publicly traded Chinese companies warned that they had invested money with Zhongrong International Trust, which is managing about $85 billion in assets, and said that Zhongrong had failed to pay the companies what they were owed. It was not clear that those investments were tied to real estate, but Zhongrong had been a major shareholder in several projects of developers in default, according to the South China Morning Post. Zhongrong did not respond to an email seeking comment.

A crowd of angry Chinese investors gathered outside the Beijing offices of Zhongrong, demanding that the company “pay back the money” and calling for an explanation. It was not clear when the protest took place; videos of it were uploaded to Douyin, the Chinese version of TikTok, this month.

The demonstration was reminiscent of other acts of defiance in China rooted in the housing crisis. Such occurrences are rare, but there are a few recent examples.

In February, thousands of retirees in Wuhan confronted officials to protest cuts in government-provided medical insurance for seniors. The cutbacks were a sign of the strain on local governments caused in part by the downturn in real estate that had hurt land sales, a reliable source of revenue.

Last year, hundreds of thousands of homeowners refused to pay mortgages on unfinished apartments. Some staged protest videos on social media, while collectives of homeowners tracked boycotts online.

Both protests drew notice, but the momentum petered out as the government intervened to limit discussion on social media, while adopting some steps to ease tensions. Last week, a new video outside Zhongrong’s offices showed no demonstrations but police cars and vans were parked in and near the facility.

Claire Fu and Li You contributed reporting.

Business

Starbucks Reverses Its Open-Door Policy for Bathroom Use and Lounging

Published

54 minutes ago

January 14, 2025

Press Room

Starbucks Reverses Its Open-Door Policy for Bathroom Use and Lounging

Starbucks will require people visiting its coffee shops to buy something in order to stay or to use its bathrooms, the company announced in a letter sent to store managers on Monday.

The new policy, outlined in a Code of Conduct, will be enacted later this month and applies to the company’s cafes, patios and bathrooms.

“Implementing a Coffeehouse Code of Conduct is something most retailers already have and is a practical step that helps us prioritize our paying customers who want to sit and enjoy our cafes or need to use the restroom during their visit,” Jaci Anderson, a Starbucks spokeswoman, said in an emailed statement.

Ms. Anderson said that by outlining expectations for customers the company “can create a better environment for everyone.”

The Code of Conduct will be displayed in every store and prohibit behaviors including discrimination, harassment, smoking and panhandling.

People who violate the rules will be asked to leave the store, and employees may call law enforcement, the policy says.

Before implementation of the new policy begins on Jan. 27, store managers will be given 40 hours to prepare stores and workers, according to the company. There will also be training sessions for staff.

This training time will be used to prepare for other new practices, too, including asking customers if they want their drink to stay or to go and offering unlimited free refills of hot or iced coffee to customers who order a drink to stay.

The changes are part of an attempt by the company to prioritize customers and make the stores more inviting, Sara Trilling, the president of Starbucks North America, said in a letter to store managers.

“We know from customers that access to comfortable seating and a clean, safe environment is critical to the Starbucks experience they love,” she wrote. “We’ve also heard from you, our partners, that there is a need to reset expectations for how our spaces should be used, and who uses them.”

The changes come as the company responds to declining sales, falling stock prices and grumbling from activist investors. In August, the company appointed a new chief executive, Brian Niccol.

Mr. Niccol outlined changes the company needed to make in a video in October. “We will simplify our overly complex menu, fix our pricing architecture and ensure that every customer feels Starbucks is worth it every single time they visit,” he said.

The new purchase requirement reverses a policy Starbucks instituted in 2018 that said people could use its cafes and bathrooms even if they had not bought something.

The earlier policy was introduced a month after two Black men were arrested in a Philadelphia Starbucks while waiting to meet another man for a business meeting.

Officials said that the men had asked to use the bathroom, but that an employee had refused the request because they had not purchased anything. An employee then called the police, and part of the ensuing encounter was recorded on video and viewed by millions of people online, prompting boycotts and protests.

In 2022, Howard Schultz, the Starbucks chief executive at the time, said that the company was reconsidering the open-bathroom policy.

Business

'TikTok refugees' unexpectedly turn to Chinese alternative as ban looms

Published

2 hours ago

January 14, 2025

Press Room

'TikTok refugees' unexpectedly turn to Chinese alternative as ban looms

TAIPEI, Taiwan — TikTok users concerned about a looming ban are finding solace in a strange place.

Days ahead of a Supreme Court decision that could determine whether the popular short-video app shuts down starting Sunday, a number of users appear to be turning to an app called RedNote — more commonly known to its majority-Chinese audience by its Chinese name, Xiaohongshu.

It’s a surprising choice since Xiaohongshu is Chinese-owned, and such ties are the reason U.S. lawmakers moved to ban TikTok in the U.S., citing privacy and national security concerns.

Also Xiaohongshu is dominated by Chinese language, and its content is subject to censorship by Chinese government officials, something alien to most U.S. users.

But by embracing a Chinese social media and lifestyle app similar to Instagram, some U.S. TikTok users say they are protesting what they believe is the unfair ban of the ubiquitous app.

“I think America is trying to bully China into selling to an American owner. A lot of us just don’t want to give in to them,” said Samantha Manassero, a 39-year-old nurse in L.A. who downloaded Xiaohongshu on Sunday night after watching content creators on TikTok pitch it as a comparable app. “I think some of it is literally just pettiness.”

Last year, Congress passed a bill that requires TikTok’s owner, Bytedance, to sell the app to a U.S.-approved owner or face a nationwide ban. As soon as Wednesday, the Supreme Court is expected to uphold the legality of the ban.

It was unclear whether Xiaohongshu, which was started in 2013, would become a viable alternative to TikTok or if the recent migration to the Chinese platform accounts for a significant share of TikTok’s 170 million U.S. users.

But a surge in new users made Xiaohongshu the top free download on Apple’s App Store this week. No. 2 on the charts was another social media app developed by Bytedance, Lemon8. It’s unclear whether either app will be subjected to the same U.S. government scrutiny as TikTok.

It is also difficult to determine exactly how many U.S. TikTok users have created accounts on Xiaohongshu or how many will stay on it. While many Xiaohongshu regulars have welcomed the influx of Americans identifying themselves as “TikTok refugees,” the app’s interface is largely in Chinese, making it difficult to navigate for non-native speakers.

Chinese apps are subject to stringent censorship on discussions that the Chinese government deems politically sensitive. These topics can range from illegal activities to LGBTQ+ rights to Winnie the Pooh, images of which have been used to mock Chinese President Xi Jinping.

The Chinese version of TikTok, called Douyin, has different content restrictions and is only available for mobile download in China. Bytedance has argued that TikTok, which is used by the rest of the world, is a separate entity from Douyin and not beholden to the Chinese Communist Party.

That did not stop President-elect Donald Trump from proposing a ban of TikTok in 2020, or President Biden from signing it into law in 2024.

The legality of such a ban has been questioned several times. Last month, in an about-face, Trump, who has 14.8 million followers on TikTok, filed a legal brief requesting to stay the ban so he can negotiate a deal once he takes office.

As TikTok faces an uncertain future, Xiaohongshu’s latest arrivals were eager to try out the new app despite its foreign nature.

Manassero, who posts videos about healthcare and power lifting to about 7,000 followers on TikTok, said she already has a much larger audience of 26,000 on Instagram. However, she was motivated to create an account on Xiaohongshu partly out of frustration at the U.S. government’s determination to outlaw TikTok.

“I don’t know what I’m doing, I don’t know what I’m reading, I’m just pressing buttons,” Manassero said in her first video post. The next morning, her account had received 5,000 views and 3,500 new followers. By Tuesday, the hashtag “Tiktok refugee” had received more than 90 million views and 2 million comments.

TikTokers sought each other out with introductions, follow requests and shared tips on how to navigate the app’s Chinese functions. On Monday, more than 190,000 viewers joined a live chat named “TikTok Refugees Club,” and held discussions in English about what a TikTok ban would mean and future plans for social media content. In the comments, users greeted new arrivals and lamented they could not understand each other.

“Maybe you can learn how to speak Chinese,” one user wrote in English.

“Where’s the translator?” another viewer asked in Chinese.

On Tuesday, the Wall Street Journal reported that Chinese officials had discussed the possibility of selling TikTok to a trusted non-Chinese party such as Elon Musk, who already owns social media platform X. However, analysts said that Bytedance is unlikely to agree to a sale of the underlying algorithm that powers the app, meaning the platform under a new owner could still look drastically different.

Manassero and other TikTokers expressed distaste at the prospect of migrating to U.S. tech platforms such as Instagram or X that could benefit from an influx of users if TikTok shuts down.

“We don’t want to turn around and make a bunch of billionaires even more rich,” she said. “I would honestly rather the app get shut down than be owned by Elon Musk.”

Though she is still trying to figure out how to use Xiaohongshu and message people back, Manassero said she would likely stay on the Chinese lifestyle app regardless of whether the TikTok ban goes through.

“The response has been so friendly and nice. It’s good energy,” she said. “This feels like the early TikTok days: a little more organic, so it’s fun.”

Business

Why TikTok Users Are Downloading ‘Red Note,’ the Chinese App

Published

8 hours ago

January 14, 2025

Press Room

Why TikTok Users Are Downloading ‘Red Note,’ the Chinese App

Manimatana Lee spent the past five years building one of the hottest commodities on the internet: a group of people who reliably watch her videos on TikTok.

She built an audience of nearly 10,000 followers with videos of herself vacuuming her house in Wisconsin while her youngest daughter napped in a carrier on her back. A video of Ms. Lee dancing and doing the dishes — while wearing her sleeping baby — has been watched more than one million times since November.

Now, with the Supreme Court soon to rule in a case that could determine whether TikTok could be banned in the United States over national security concerns, Ms. Lee and other Americans looking for alternatives are downloading Xiaohongshu, a social media app that is popular in China and little known outside the country.

“How funny would it be if they ban TikTok and we all just move over to this Chinese app,” Ms. Lee wrote on Monday on TikTok encouraging her followers to join her.

Xiaohongshu was the most downloaded free app in the U.S. Apple store on Tuesday. Over 300 million people, mostly in China, use the app, where they share short videos as well as still, text-based posts. People flocking to it said, in interviews and on the app, that they wanted to show they do not share Washington’s concerns about TikTok’s ties to China.

TikTok, which is available in more than 150 countries but not China, is owned by the Chinese internet company ByteDance. American creators who post videos on TikTok say the app has been a source of connection, entertainment and information since it became a sensation during the Covid-19 pandemic. Its secret sauce is its proprietary algorithm, technology that recommends a constant stream of short videos targeted to keep people scrolling.

But lawmakers in the United States and other countries have warned that the Chinese government could use TikTok to access data about its users such as location and browsing histories. Officials in Washington say they are also concerned that China could use TikTok to spread false information among the 170 million people who use it in the United States.

Xiaohongshu means “little red book” in Mandarin. Americans new to the app said they were not put off by the reference to a book of Mao Zedong’s sayings. Many call the app “Red Note.”

“I don’t really care if I’m using a Chinese app at all,” said Ms. Lee. “It’s like a place for me to escape reality. And if it’s making me feel good, I’m here for it.”

A group of American creators have sued the government over the law that could see the TikTok app forcibly sold or banned in the United States, and TikTok is paying their legal fees. Ms. Lee and another creator said in interviews that their interest in Xiaohongshu had not been incentivized by either company. TikTok did not respond to a request for comment.

The Americans on Xiaohongshu have rallied under the hashtag “TikTokrefugee,” which had been viewed 100 million times and sparked around 2.5 million discussion threads on the app by Tuesday.

Joining the app has put American users in closer contact with people online in China than they have ever been on TikTok. In China, people use Douyin, a very similar app that ByteDance used to develop the technology that made TikTok a worldwide hit. Douyin is difficult to access outside China.

Many shared tips on how to navigate the app, which is mainly made for and used by people who read and speak Mandarin. Some took screenshots and asked ChatGPT to translate posts, they said.

Xiaohongshu displays the city or province of Chinese users who post and comment, and the country for users outside China. “We are coming to the Chinese spies and begging them to let us stay here,” said one American user. “Approved, welcome to Red Note,” someone in Shanghai replied.

Until late December, 85 percent of Xiaohongshu traffic was from China, according to Similarweb, a data provider and website traffic tracker. The app is especially popular among women in their 20s and 30s, and its long comment threads have become a popular source of information for people to swap questions about everyday concerns, similar to Reddit.

Xiaohongshu did not respond to requests for comment.

On Tuesday, more than 100,000 people had joined a live group chat hosted by a user named “TikTok Refugee Club,” where people from around the world chatted with Chinese users about urban safety. In another group chat, which had been viewed more than 30,000 times, participants discussed censorship and shared tips in the comments on how to avoid being banned from the platform for bringing up politically sensitive topics.

Under another video posted by someone who said they were usually on TikTok, a user in China responded with a meme of a cat with paws outstretched. “I’m your Chinese spy,” the comment said, “give me all your data.”