China’s Second Largest Property Developer, Evergrande, On Verge of Collapse
Sheldon Filger-blogger for GlobalEconomicCrisis.com
With 1,300 projects across 280 Chinese cities, Evergrande currently ranks as the second largest property developer in China and one of the major builders of apartments in the world’s second largest economy. But not for long.
As a result of Chinese government measures that were meant to put a brake on rising housing prices by restricting riskier mortgages, but had the unintended consequence of curtailing credit to an extent that had not been foreseen, Evergrande is now starving for cash. It has $300 billion USD in debt, and is increasingly struggling g to meet interest payments. The likelihood is that Evergrande will default on its outstanding loans.
There are already predictions that Evergrande will become the Lehman Brothers moment for China. Despite the nation being an authoritarian police state, there have been angry demonstrations throughout China, bordering on riots. The reason is that large numbers of investors, and well as a multitude who have placed large down payments on apartments that may never be built, are angry at the prospect of finding themselves suffering massive and possibly irrecoverable financial losses. It should be recalled that the bulk of Chinese citizens’ wealth is the equity in their apartments.
Though the bulk of those directly exposed to the risk of an Evergrande collapse are Chinese citizens, the repercussions cannot be contained within China. The size of the Chinese economy and its global interconnectedness mean that there will be collateral damage and contagion impacting the entire global economy. Just as the implosion of the U.S. subprime housing market set off the global financial crisis of 2007-09, the impending demise of Evergrande may very well be the final nail in the coffin of the post-pandemic world economy, ushering in the global economic crisis of the 21st century.
Evergrande may become the epicenter of global financial contagion, just as Wuhan was for the Covid pandemic. What happens to this very large but increasingly insolvent company will be highly consequential for the global economy.