How fall of property giant Evergrande sent a shockwave through China

In May 2020, Chen (not his real name) decided to invest 300,000 yuan (£34,000) in property in the north-eastern Chinese city of Shenyang. “I thought the price was not too expensive and I had some extra money so I invested it,” he said. “I thought it was going to be all right because Evergrande is such a big name and enterprise.”

© Provided by The Guardian Photograph: Vivian Lin/AFP/Getty Images

Chen was following in the footsteps of countless fellow Chinese, getting in on a booming property market that had turned big cities such as Beijing, Shenzhen and Shanghai into some of the world’s most expensive, amid the huge transfer of the population from rural to urban areas.

But in the 16 months since Chen bought his off-plan apartment, Evergrande – a Fortune Global 500 company – has become the country’s most indebted developer, with more than $300bn (£220bn) in liabilities, dozens of sprawling residential projects stalled and an estimated 1.5 million unfinished apartments that it needs to deliver to investors.

The potential collapse – the culmination of years of borrowing – has sent shockwaves through the finance and property sectors, and prompted concern that it could affect China’s entire financial system, even international markets. There are also concerns about how it will affect iron ore prices. On Thursday, the Fitch Ratings agency downgraded its forecast for China’s economic growth, saying the “main factor weighing on the outlook is the slowdown in the property sector”.

© Photograph: Vivian Lin/AFP/Getty Images An unfinished Evergrande ‘cultural tourism city’ in China’s eastern Jiangsu province.

Two weeks ago Evergrande issued a public statement, admitting it was facing “unprecedented difficulties” and had hired restructuring consultants, but hit back at speculation of bankruptcy.

Wednesday appeared to bring some hope, as the company announced it had reached a deal to repay interest on a domestic bond due on Thursday. But it did not announce the payment of $83.5m due in interest to international bondholders on the same day. And as the silence continued into Friday, worries were compounded by reports that its electric vehicle unit had missed payments to suppliers and salaries to some staff.

“I don’t see any alternative for the company than going through some form of debt restructuring, which will involve significant debt rescheduling, potentially a debt-for-equity swap,” said Michel Löwy, chief executive of the global banking group SC Lowy.

© Provided by The Guardian People demand repayment of loans and financial products at the Evergrande’s headquarters in Shenzhen. Photograph: David Kirton/Reuters

Evergrande’s crisis has not come without warning, and in recent years Chinese regulators have been putting the squeeze on the country’s entire property market, valued at $52 trillion by Goldman Sachs in 2019.

All over China, dozens of high-rises continually spring up, spread across spaces the size of several football fields. The rush to build has caused numerous problems, including risky finances, poor construction – dramatically demonstrated in viral footage of the mass demolition of 15 high-rises in the city of Kunming – and huge oversupply. Analysts have estimated 90 million people could be housed in the empty properties.

The value of home sales has fallen by 20% year on year in the wake of tougher regulation. In August last year, in response to growing concerns about the property market, the government introduced debt cap ratios, dubbed “three red lines”. Economist George Magnus, an associate at the China Centre at Oxford University, said the three red lines were not “a killer blow” to the industry, “but they’ll certainly have exacerbated the financial stress many developers were experiencing in a structurally weakening property market”.Magnus added that the government has sought to improve financial stability by getting developers to cut back on borrowing, and to curb the oversupply of housing: “I’m sure this had brought matters to a head, but also that this debt crisis for Evergrande and some others was coming anyway.”


Video: Credit Suisse Mulls Asia Investment Bank Changes (Bloomberg)

In November 2018, China’s central bank named the company in a report as one of the few financial holding conglomerates that could cause systemic risk. In March 2020, the company set targets to cut debt by $23.3bn a year for three years and in August was among 12 big developers called in to speak with regulators about the new three red lines.

Over the next year Evergrande rushed through the sale of subsidiary businesses, initial public offerings and investor drives, raising tens of billions of dollars and offering massive discounts on properties to drive sales, and set a target to meet all three red lines by the end of 2022. But, according to research institute Beike, it failed to reach two targets despite paying down some debt.

© Provided by The Guardian Guangzhou Evergrande stadium, designed to be the world’s largest football-only arena, under construction in China’s southern Guangdong province. Photograph: AFP/Getty Images

With creditors across the globe now scrambling, it is the stories of the smallest investors that are among the most shocking. Earlier this year employees at Evergrande and some subsidiaries were reportedly told to give the company a short-term loan out of their own finances, or forgo their bonuses.

Some borrowed from friends and family, assuming their all-but-mandatory loan was safe. They are now among the hundreds picketing the company’s offices nationwide. Videos spread online, with crowds inside the lobby of Evergrande’s Shenzhen headquarters shouting for the return of money they earned with their own “blood and sweat”.

“Your conscience has been eaten by dogs,” said one highly distressed woman. “We sold everything we had, both of our flats, so that we could buy property with Evergrande, because you were one of the world’s top 500 companies – I have nothing left,” she told the camera.

On Thursday, Evergrande’s chairman, Xu Jiayin, said the company was giving priority to ensuring that retail investors redeemed their investment products. China’s central bank injected 110bn yuan in short-term liquidity into the financial system on the same day, the largest amount in eight months. It followed previous injections over three consecutive sessions in response to market fears over Evergrande, Bloomberg reported.

There is rampant speculation over whether the central government will step in. Under the leadership of Xi Jinping, the Chinese Communist party has been closely examining the country’s private sectors. Everything, from tech giants, individual moguls, private education and social media to ride-sharing apps, streaming platforms and the entertainment business – even actors and entertainers themselves – has been dragged through regulatory overhauls.

A common factor in these the sectors is financial and influential expansion – often globally – beyond the confines set by the party and how it expects Chinese society to run. China’s leadership has been vocal about its belief that homes are for living in, not investing in, as it works towards a goal of national “moderate prosperity”.

Magnus predicts government intervention, noting that the authorities want to make an example of Evergrande to other banks, developers and investors, but also cannot allow “a messy default in which citizens lose money and in which contagion takes the crisis outside property”.He said: “I imagine sooner or later banks and entities will take on housing stock and liabilities, and other developers will take on assets too.

© Provided by The Guardian A woman walks through Evergrande city plaza, next to its apartment buildings in Beijing. Photograph: Roman Pilipey/EPA

“The restructuring will be aimed mainly at dividing Evergrande’s liabilities among stronger firms, so that a slimmer unit can still trade or it is gradually wound up.”

Löwy adds that there is a “real possibility” that Beijing will step in to assist the regular citizen investors and employees and local suppliers.

“I can easily see the government getting itself involved financially or from a management standpoint, to make sure those people are protected. It could even extend to local creditors,” he said.

“I don’t see that extending to offshore bond holders and creditors but certainly to suppliers and home buyers and employees.”

Löwy also speculated that if Evergrande had stopped paying its employees, it was potentially an effort to put pressure on Beijing to intervene.

Chen is not concerned about the risk to his investment, and trusts that he will get his apartment. “The earlier the better, for me. If they hand it over later, I think it doesn’t matter either,” he said. But if they do not hand it over at all? “I will let it be. I already bought the apartment, there is no use in being angry about it.”

Additional reporting by agencies

Internet Explorer Channel Network
News Related

OTHER NEWS

South Africa vs West Indies, ICC T20 World Cup 2021, Live Cricket Score: Lewis' 50* gives WI a good platform as SA struggle for breakthrough

16:10:52 IST FIFTY up for Lewis! 50 (32) 16:10:35 IST SIX! Shamsi sends it down leg and Lewis gets down on one knee and connects beautifully with the slog-sweep to bring up ... Read more »

EU-Behörde empfiehlt Booster-Impfung mit Moderna-Präparat

© Keystone/AP/Rogelio V. Solis Die Europäische Arzneimittelbehörde (EMA) hat eine Corona-Auffrischungsimpfung mit dem Corona-Impfstoff des Herstellers Moderna ermöglicht. Eine Booster-Impfung mit Spikevax könnte Menschen über 18 Jahren sechs bis acht ... Read more »

Ahead of UP Elections, BSP Leaders Switching Over to Akhilesh Yadav's SP

© Provided by News18 Ahead of UP Elections, BSP Leaders Switching Over to Akhilesh Yadav’s SP The Buwa-Bhatija duo was expected to pull off a miracle in Uttar Pradesh during ... Read more »

CBI Arrests Serving Navy Officer, 2 Retired Personnel for Leaking Info Related to Submarine: Report

© Provided by News18 CBI Arrests Serving Navy Officer, 2 Retired Personnel for Leaking Info Related to Submarine: Report The Central Bureau of Investigation (CBI) has arrested a serving Indian ... Read more »

Suriya takes the stand on his upcoming courtroom drama 'Jai Bhim'

© IANS Jai Bhi. Chennai, Oct 26 (IANS) Suriya Siva Kumar stars as an advocate in upcoming courtroom drama ‘Jai Bhim’ which will have an OTT release on Prime Video ... Read more »

Raveena Tandon turns 47. Shilpa Shetty to Juhi Chawla, Bollywood says happy birthday

Shilpa Shetty and Juhi Chawla wished Raveena Tandon a happy birthday. Raveena Tandon is celebrating her 47th birthday today, October 26. Her friends and colleagues from the industry took to ... Read more »

Maintain unity and discipline, Sonia tells partymen

© Provided by The Statesman Maintain unity and discipline, Sonia tells partymen As her faction-ridden party gears up for the crucial assembly elections in five states, Congress President Sonia Gandhi ... Read more »

Bachelorette's Katie Thurston and Blake Moynes announce SPLIT 3 months after getting engaged on the show

© Provided by Pinkvilla Bachelorette stars Katie Thurston and Blake Moynes took to Instagram to announce their split on Monday, October 25. Nearly after 3 months since the duo got ... Read more »

Coronavirus, Or the Flu? Here's 5 Easy Ways to Tell

With coronavirus cases beginning to rise once again in the UK, the country could be facing a bleak winter, with cases of the novel respiratory disease now circulating alongside the ... Read more »

Millions of Brits are unaware what nutrients they need for a healthy body

© Provided by Edinburgh Evening News A study of 2,000 adults revealed 37 per cent are unsure of what vitamins their families need, while 35 per cent admit they don’t ... Read more »

Nootropics Are Trending…but What the Heck Are They?

© ROBERT BROOK/SCIENCE PHOTO LIBRARY/Getty Images Remember that 2011 movie Limitless? In it, Bradley Cooper plays a struggling writer who discovers a magical pill that makes him a smarter, more productive and ... Read more »

Activists disrupt Paris climate finance meeting before COP26

By Sudip Kar-Gupta © Reuters/BENOIT TESSIER FILE PHOTO: Climate activists mark the fifth anniversary of the Paris Agreement on climate change, in Paris PARIS (Reuters) – Activists disrupted a green ... Read more »

Fired Netflix Trans Employee Doesn't Want Dave Chappelle's Special Taken Down

The transgender Netflix employee who was fired for allegedly leaking sensitive information has revealed that they do not want Dave Chappelle’s controversial comedy special, The Closer, to be taken down ... Read more »

Former Scotland and Rangers manager Walter Smith dies aged 73

© PA FORMER SCOTLAND, RANGERS and Everton manager Walter Smith has died aged 73. Smith led Rangers to 10 top-flight titles, five Scottish Cups and six League Cups as well ... Read more »

Chelsea in two-month contract stalemate with Christensen

© PA Images Andreas Christensen scores a goal Talks between Chelsea and centre-back Andreas Christensen have stalled after a reported two months without contact between the two parties. Christensen’s contract ... Read more »

This Morning fans slam 'painful' cooking segment with Our Yorkshire Farm's Amanda Owen

This Morning viewers were not impressed on Tuesday as Holly Willoughby and Phillip Schofield invited Amanda Owen onto the show. The star of Our Yorkshire Farm appeared on the show ... Read more »

Rust Director Recalls Fatal Shooting Of Halyna Hutchins As New Details Emerge Into Cinematographer's Death

The director who was injured in the shooting on the set of Alec Baldwin’s film Rust has spoken of the moment the movie’s cinematographer Halyna Hutchins was fatally shot. The ... Read more »

10 Gunther Moments That Prove James Michael Tyler Really Was The Seventh Friend

James Michael Tyler as Gunther in Friends (Photo: NBC via Getty Images) Friends fans across the globe have been left saddened by the news James Michael Tyler has died at ... Read more »

Air Chief Marshal Sir John Rogers, Cold War fighter pilot who later oversaw procurement of all military aircraft and associated weapon systems – obituary

John Rogers Air Chief Marshal Sir John Rogers, who has died aged 93, was a former aircraft apprentice and Cold War fighter pilot who rose to serve on the Air ... Read more »

Amanda Seyfried opens up about 'tricky' birth of son

© Provided by Cover Media Amanda Seyfried Amanda Seyfried is still recovering from the “tricky” birth of her second child. During an interview panel following a screening of her latest ... Read more »

Opinion: It's not just carbon emissions. Human failures are ruining the climate too

In a few days’ time world leaders will meet at the COP26 climate change conference in Glasgow, Scotland. There, they will get a rare and precious opportunity not only to ... Read more »

South African court rules Zuma's corruption case to continue

1 / 7South Africa ZumaFormer South African President Jacob Zuma, sits in the High Court in Pietermaritzburg, South Africa, Tuesday Oct. 26, 2021. Zuma has demanded to be acquitted of ... Read more »

More than 150 arrested in global crackdown on Darknet traders: Dutch media

THE HAGUE (Reuters) – At least 150 people have been arrested by European and U.S. authorities after a joint crackdown on traders of drugs, weapons and other illicit goods on ... Read more »

Who are public sector workers?

PUBLIC Sector workers are set to get a pay rise for the first time in two years. Chancellor Rishi Sunak confirmed on October 25, 2021, that the pay freeze for ... Read more »

UK Space Agency renews efforts to tackle 'neglected' space debris

© Provided by City AM The UK Space Agency has renewed its efforts to tackle the “neglected” issue of space debris, amid concerns it could damage satellites and impact SatNav ... Read more »

Scottish SPCA warn Edinburgh dog owners after suspected poisonings around Dania Court

© The SSPCA have been informed about a string of suspected dog poisonings around Dania Court in Edinbu… Scotland’s animal welfare charity was contacted by a member of the public ... Read more »

Column: If Biden is serious about the climate crisis, he should put nuclear power on the table

World leaders are heading to Glasgow, Scotland, to come up with yet another plan to tackle climate change. Joe Biden had hoped to have a stack of climate-related legislative accomplishments ... Read more »

I Bought the Perfect Fall Cardigan for $27 on Amazon—Here Are All the Ways I'm Wearing It

As hard as it is to believe, fall’s already a month old—which means that if you haven’t stocked up on cute and comfy autumnal sweaters just yet, you’re running out ... Read more »

Top business group launches six-figure ad buy in Arizona urging Sinema to oppose tax increases

A coalition of top business groups is launching a six-figure ad buy in Arizona to urge Sen. Kyrsten Sinema (D-Ariz.) to “keep fighting for her state’s Main Street and small ... Read more »

Dutch court: Crimean treasures must be sent to Ukraine

AMSTERDAM (AP) — An Amsterdam appeals court ruled Tuesday that a trove of historical treasures from Crimea that have been stored for years at a Dutch museum must be given ... Read more »

Is Biden's entire agenda about to shrink into nothingness?

© Provided by The Guardian Photograph: REX/Shutterstock This week, Democrats either reach agreement on Biden’s social and climate agenda or the agenda may shrink into meaninglessness. The climate measures in ... Read more »

5,726 kes baharu Covid-19, 5,607 pesakit sembuh

© Provided by Free Malaysia Today PETALING JAYA: Kementerian Kesihatan melaporkan 5,726 kes baharu Covid-19 dan 5,607 pesakit sembuh dalam tempoh 24 jam lalu. Ini menjadikan keseluruhan 2,442,224 daripada 2,340,390 pesakit ... Read more »

Tickets booked an hour in advance expected as part of late-night event rules

© Garrett White People outside Copper Face Jack’s nightclub in Dublin (Garrett White/PA) Tickets for nightclubs and late-night events will be required to be booked at least an hour in ... Read more »

Saudi's Islamic Development Bank lists $1.7bn sukuk on Nasdaq Dubai

© Motivate Publishing Nasdaq Dubai Islamic Development Bank Saudi Arabia’s Islamic Development Bank (IsDB) has listed a $ 1.7bn sukuk on Nasdaq Dubai. IsDB is now the largest sukuk issuer ... Read more »

Stripe Strikes Tie-Up With Klarna After Frenzy of Rival Deals

© Bloomberg Stripe To Offer Citi, Goldman Accounts Through E-Commerce Giants (Bloomberg) — Stripe Inc. will allow retailers to add Klarna Bank AB’s buy-now-pay-later service as a purchasing tool for ... Read more »

Gin-guzzling nurse, 42, caught holding up roundabout traffic in her BMW was more than 4 times over drink-driving limit

A GIN-GUZZLING nurse who was caught holding up roundabout traffic was more than four times over the drink-driving limit, a court has heard. Natalie Robinson, 42, was caught in her ... Read more »

Fern Britton 'joins All Star Musicals Christmas special'

Fern Britton is set to appear on ‘All Star Musicals’. © Bang Showbiz Fern Britton The former ‘This Morning’ presenter, 64, is expected to appear with five other celebrities as ... Read more »

Top corporate updates: Nestle's Rs 110 dividend, Infosys' Rs 15 dividend, Godawari Power & Ispat bonus ex-date today

© Provided by Zee Business There are a few important corporate developments lined up for shareholders on Tuesday.  Nestle India, Infosys will offer dividends of Rs 110 per share and Rs 15 stock a piece respectively, while Godawari Power and Ispat ... Read more »

London tourism bookings soar for 2022

(AP) Hopes of a huge revival in foreign tourism in London next year were given a boost on Tuesday by a survey showing the capital ranked the second most popular ... Read more »

Could China be about to unban bitcoin?

China’s crackdown on bitcoin mining in earlier this year preceded one of the most devastating price crashes in the cryptocurrency’s history. © Getty Images China’s crackdown on bitcoin mining and ... Read more »
On free-english-test.com you will find lots of free English exam practice materials to help you improve your English skills: grammar, listening, reading, writing, ielts, toeic