Hectic week for the Chinese economy, which began with the crisis due to the astronomical debt of the Evergrande construction company and ends with the cryptocurrency ban, like the popular Bitcoin. In the background in both cases, economic control and the risks of volatility, which pose a threat to one of the main pillars of the authoritarian regime in Beijing: social stability.
After vetoing its transactions in Chinese banks and businesses in May, causing almost a trillion dollars to volatilize from this virtual market, Beijing goes one step further and makes cryptocurrencies illegal. “Any legal person, organization and individual who provides the sale, payment or technical support in businesses related to virtual currencies will be investigated according to the law”, the Central Bank warned this Friday, according to the newspaper South China Morning Post.
Up to now, China It did not facilitate the use of cryptocurrencies, but various foreign and national platforms continued to offer them to the point of capturing 70 percent of the world market. From now on, Beijing will pursue its trade because, as the Central Bank warned, anyone who participates in it participates in “an illegal financial activity” and will be accused of a crime.
As cryptocurrencies are a virtual currency that circulates through the computers of its users, the Chinese authorities fear that it poses a risk to the economy due to its volatility. In May, the State Council specifically warned that it would phase out Bitcoin to prevent individual risks from affecting the whole of society. In addition to not losing control of the economic situation and the national currency, the yuan, the Government thus intends to combat capital flight through this method. Especially now, as it has launched a campaign with the slogan of “common prosperity” to reduce social inequalities by increasing taxes on the richest.
Similarly, Beijing tries to control the risks posed by the bubble in its real estate sector, which has the world in suspense due to the debt of 300,000 million dollars (255,000 million euros) of the evergrande giant. After raising their shares almost 18% on Thursday, this Friday they fell 11.61%. In a single day, the buying euphoria over the secret deal to pay off one of his many debts turned into uncertainty over the non-payment of interest on a foreign bond. If before investors thought that the Government would end up bailing out the company because it is ‘too big to fail’, more and more information is emerging to the contrary.
Although the Evergrande crisis barely appears in the official Chinese media, one of the options that analysts envision would be to chop up the company so that local administrations and state-owned companies could assume the restructuring of its debt. This would prevent a collapse that would shake the Chinese financial system and Evergrande’s creditors would see some, perhaps not all, of their fair share. From highest to lowest priority, customers who have bought off plan and suppliers would start and end banks and foreign investors, who have a very difficult, if not impossible, to get their money back.