By Owen Ryan, Staff Writer
With great anticipation, the world keeps a close eye on this Chinese real estate developer and wealth management company’s next move. Evergrande, the world’s largest development company, is currently starting a financial crisis head-on.
This capital giant owns more than 1,300 real estate projects in over 280 Chinese cities. However, to keep up with this massive number of projects, Evergrande has needed to incur a whopping debt of $300 billion. Due to a variety of different factors, the company has been struggling to make its latest debt payments. For example, Evergrande has already missed its last two payments totaling $131 million, which were due September 23 and 29. Soon, the Chinese government may have to decide to put the entire Chinese financial market at risk or to bail Evergrande out.
Although Evergrande is mostly involved in the real estate and development sector, they are also a major contributing player in the electric vehicle, consumer product, healthcare, and entertainment industries. They are even in the process of building a brand-new soccer stadium for a team that they personally own. Once finished, this stadium will be a beautifully architected structure resembling a lotus flower.
If this financial giant were to default, the crash would ripple throughout financial markets worldwide. According to the Wall Street Journal, Evergrande has turned to the physical real estate they own to pay off its debts. Reportedly owing money to around 171 domestic banks and 121 other financial institutes, a default would ripple throughout the world.
Not only would large institutions struggle from a collapse, but many home buyers would be left with unbuilt apartments. which had been paid for prior to construction. The Wall Street Journal states, “Evergrande has nearly 800 projects across China that are unfinished, and as many as 1.6 million people who are still waiting to move into their new homes, according to an estimate from Barclays.” In fact, much of the cash which has recently been raised by Evergrande has come from the presold apartments which are still under construction.
Originally, Evergrande first started facing financial issues when COVID-19 first hit the world. Ultimately, the Chinese housing market began to see a dramatic slowdown in demand for new homes. Although this slowdown in demand hurt Evergrande severely, regulations put forth by the Chinese government poured salt into the wounds financially.
With the goal of housing price stabilization and the reduction of debt-related growth required by Chinese developers, the Chinese government has begun to cut down on the amount of money it is willing to lend. These next few months will be crucial to the long-term survival of Evergrande.
