The Chinese property developer that is built on the foundation of ‘never-ceasing existence through the ages’ and ‘universal growth’ is now facing a critical financial situation that could lead to an economic downturn.
Evergrande is China’s second-largest property developer with more than 1,300 real-estate projects in China, 200,000 employees, and indirectly creates 3.8 million jobs every year. Additionally, the firm has strategic cooperation with more than 860 well-known companies around the world, according to its website. All things considered, Evergrande’s potential failure could not only hurt the Chinese economy.
The Chinese giant is under a crushing debt of $3 billion and is struggling to pay stakeholders. It warned investors on several occasions that it could default on its debts.
Banks, suppliers, homebuyers, and investors are all involved in Evergrande’s value chain and could feel the impact of a potential collapse. Consequently, the fallout of Evergrande could spread to other industries and markets outside China’s borders; which is known as the contagion effect.
The banking industry would be among the first to be hit if there are any contagion effects. HSBC and Standard Chartered for example have declined to extend new loans to buyers of two uncompleted Evergrande projects, said Reuters.
Experts believe that the Chinese government will likely contain the issue before it affects the banking system, and it is not expected to lead to a broader global financial contagion.
References:
1) Domm, P. (2021, September 21). The global economy could feel the effects of China's Evergrande Crisis. here's what investors should know. CNBC. Retrieved September 25, 2021, from https://www.cnbc.com/2021/09/20/chinas-evergrande-crisis-could-inflict-pain-on-the-world-economy.html?recirc=taboolainternal.
2) Evergrande Group©all rights reserved. Evergrande Group. Evergrande Group - About Evergrande. (n.d.). Retrieved September 25, 2021, from https://mobilesite.evergrande.com/en/about.aspx
3) Tan, W. (2021, September 17). China's embattled developer Evergrande is on the brink of default. here's why it matters. CNBC. Retrieved September 25, 2021, from https://www.cnbc.com/2021/09/17/china-developer-evergrande-debt-crisis-bond-default-and-investor-risks.html
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