Evergrande Is on the Verge – Chinese Politics
Evergrande, a Chinese property giant, is on the verge of collapse. Analysts warn that future results could turn out to be so bad that the impact could spread beyond China’s borders.
According to Mark Williams, chief Asian economist at Capital Economics, the collapse of the Evergreen will be the biggest test that China’s financial system will face in recent times.
The main question is – what awaits investors?
After the Chinese economy flourished for years, Evergrande expanded rapidly and gained assets. The company owes a crushing debt of $300 billion.
A real estate developer is trying to pay his suppliers. The company has warned investors that it will be able to pay off its debts. On Tuesday, Evergrande said sales of the company’s assets are expected to decline significantly in September and that the cash flow situation will worsen further after that.
Evergrande is so influential that the results of its failure can hurt too many companies/customers. This process is dangerous not only for the Chinese economy but also globally.
Banks’ response to deteriorating cash flows was as follows; Some Hong Kong has refused to issue new loans to the Evergrande housing project buyers.
Firms, rating agencies, citing liquidity problems, have repeatedly reduced. Evergrande’s issues were exacerbated, especially last year when China introduced laws to reduce the cost of borrowing from developers. These rules set the debt limit at the firm’s assets, cash flows, and equity levels.
The company’s stock price has fallen by almost 80% this year. Chinese stock exchanges have repeatedly halted the trading of bonds.
Evergrande’s primary business is real estate. The second-largest real estate developer in China owns 1,300 real estate deals in the country.
The company has seven units in various industries, including health services, theme parks, electric cars, consumer products, video-television production units. According to the firm, the company has 200,000 employees. It also creates more than 3.8 million jobs indirectly.
The group of parties affected by this failure includes banks, investors, home buyers, and suppliers. The company also warned that its problems could increase the identified risks.
In particular, if the company fails to repay the debt, it may shift to other liabilities, leading to widespread infection.
Analysts say restructuring is inevitable. Evergrande is a primary real estate developer. Economists do not rule out the possibility of the government or the central bank taking some supportive measures to save the company.
According to Natixis, the Chinese government is expected to do everything possible to avoid “systemic risks.” However, the fact is that the Evergreen debt crisis may prove to be very large.
The fate of the giant company now depends on quite a lot. The fact is that the trade sector, especially in China, and the banks are facing quite tricky months ahead. Now investors and several companies are waiting for Evergrande to take action and the Chinese government.
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