Beijing caps its Lunar New Year celebrations by welcoming the 2022 Winter Olympics

Last week, China’s President Xi Jinping opened the Beijing Winter Olympics to 3,000 performers taking the stage of high-definition LED screens in the famed Bird's Nest stadium.

Dancers poured in waving glowing green stalks to mark the first day of spring on the Chinese calendar, followed by an explosion of white and green fireworks that spelled the word "Spring." On a three-dimensional cube resembling a block of ice, lasers carved figures from each of the previous 23 Winter Games. The block was then "broken" by ice hockey players, enabling the Olympic rings to emerge, all in white.

The 2022 Winter Olympics is the first Winter Olympic Games in China, and the second overall Olympics in the country after Beijing was selected as host city in July 2015.

More than 2,800 athletes from 61 countries have descended on Beijing to participate in 15 different athletic disciplines.?

The Winter Olympics buttress the start of Lunar New Year in China —?the traditional Spring Festival that runs from February 1 through February 15 this year — which sees millions of citizens travel back to hometowns for gatherings as well as a seemingly endless display of fireworks in cities and towns around the country.?

"The revelatory nature of both Chinese New Year and the Winter Olympics stands in contrast to a 2021 that has highlighted structural concerns in the economy," says Edward Lehman, founding partner at LehmanBush. "From an imbalance standpoint and questions surrounding property development to market interference, all of this will come back into focus once the athletes have gone home and the Lantern Festival concludes."

Last month, the China's State Council said it would allow Guizhou, one of China’s poorest and most indebted provinces, to delay credit repayments and undergo restructuring.

The delay underlines the government’s focus on debt management, as local governments work to clean up off-balance sheet borrowing and debt cutting.?

This comes primarily from the central government stepping up supervision of local government financing vehicles (LGFVs), previously little-known platforms used to raise funds for infrastructure spending that do not immediately generate returns, which has since led to an explosive accumulation of hidden debt in regional economies.

At the end of April 2021, outstanding local government debt reportedly amounted to 26.6 trillion Renminbi (about $4 trillion USD), which returns a debt-to-GDP ratio of 24.7 percent. Though lacking in transparency, estimates from economists place LGFVs’ hidden debts at 45 trillion Renminbi, or nearly double on-balance sheet borrowing figures.

This type of lending has gone hand-and-hand with China’s real estate development, with estimates that 40 percent of LGFV revenues come from land sales by local governments.?

In Q4 2021, state-owned developers bought three-quarters of residential land sold at auctions in 22 big cities. This is mainly in response to a year-long drive by Beijing to reduce leverage across the property sector, which is estimated to account for about one-third of total output in the world’s second-largest economy, which has driven private-sector Chinese developers to the brink of bankruptcy.

China Evergrande Group, whose rocky financial situation has roiled Chinese property firms and global financial markets over the past year, got a reprieve recently after investors agreed to extend a payment date on a bond.

The deal between Evergrande's Hengda Real Estate Group and holders of its 4.5 billion Renminbi ($707.60 million USD) bonds allowed the firm to avoid a technical default that could have complicated its restructuring.

Additionally, Evergrande aims to have a preliminary restructuring proposal in place within six months.

The company has been struggling to repay more than $300 billion USD in liabilities — making it the country’s largest indebted developer — including nearly $20 billion USD of offshore bonds deemed in cross-default by ratings agencies last month after it missed payments.?

"The story of Evergrande is the story of deep, structural challenges to the country’s economy and its relationship with debt," says Lehman.

Evergrande is not alone, with Chinese developers facing $116 billion USD in maturing debt this year. And in a grim warning, analysts reported up to one-third of China’s property developers may struggle to repay these debts over the next 12 months.?

As property developers have been struggling to pay off debt amidst an overall cooling property sector, the central government took even more drastic measures when it came to technology and education, unveiling sweeping measures throughout 2021 that obliterated billions of dollars from the marketplace.?

China's central government released a so-called "double reduction policy" in July, with local authorities in provinces ordering private businesses to suspend online and offline tutoring classes for children from kindergarten to 9th grade. The guidelines focus on the nine years of compulsory education before high school — from elementary to middle school — and call for academic tutoring businesses to restructure as non-profits.

As one example, China's New Oriental education company dismissed 60,000 employees and saw operating income plunge 80 percent after Beijing enforced new sweeping rules on the country's private education industry that barred for-profit tutoring.

Since implementing the changes, at least 25 large Chinese online education firms closed shop in 2021. English education, once highly prioritized, will now take a back seat in the state curriculum.?

The educational crackdown came alongside greater online technology data changes. Fearful that data collected by private companies might fall into the hands of foreign adversaries, the central government ordered a sweeping overhaul of data privacy for technology companies throughout 2021, and the removal of dozens of online and mobile APPs for usage within China.

Over the past year, Chinese antitrust authorities have fined technology behemoth Tencent over almost three dozen of its past investments, blocked a merger and demanded the company open its ecosystem to competitors.?

Along with new rules subjecting Tencent’s investments to greater regulatory scrutiny, the company also recently divested $16 billion USD from Chinese e-commerce giant JD.com. In addition, it indicated it could continue to sell down stakes as its portfolio companies mature.

Tencent must now go through a merger approval process with the government when putting money into larger start-ups if it gains a modicum of control in the process.

"The technology crackdown is a combination of anti-trust probes, data security concerns, growth at the expense of public interest, and government interest in redirecting its economy," says Lehman. "This has taken a toll on every major tech company, including the aforementioned education industry leaders, Tencent, as well as food delivery firm Meituan, e-commerce company Pinduoduo, ride-hailing APP Didi, freight logistics APP Full Truck Alliance, and recruitment company Kanzhun (recruitment)."

The technology overhaul culminated with the introduction of the "Data Security Law" (DSL) and the "Personal Information Protection Law" (PIPL), both of which came into effect at the end of 2021. These new rules include new guidelines for handling data, updated enforcement measures and additional restrictions on the transfer of data outside of China.

The economic concerns coupled with intense state intervention into several sectors of the market — specifically the education and technology industries — will be front and center for China in 2022.?

According to Lehman, everything that has happened in 2021 speaks to larger government concerns about controlling aspects of the economy, influencing and guiding corporate development in some aspects, and correcting the marketplace in others, which means that going forward state intervention can happen at any time for any industry.?

"We’re not expecting a financial crisis in 2022," says Bobby Afshar, managing director at LehmanBush. "Nevertheless, China's economy is facing major upheavals that will affect the rest of the world in the short term."