Imminent Financial Crisis?- Collapse of Chinese Property Giant, Evergrande
Evergrande, one of China’s biggest real estate developers, expanded to become one of the world’s biggest companies in terms of revenue in the past decade. Evergrande Real Estate owns more than 1300 projects in more than 280 cities. Evergrande also owns a soccer team, amusement parks and they also manufacture electric cars, food, and drinks. However, their model of growth has been built on borrowing, and they’ve accumulated more than $300 billion in debt, making them also one of the most indebted corporations in the world.
For years, China has had a housing bubble. As an attempt to correct the market, the government has laid down stricter restrictions on real estate developers’ borrowing. As a result, Evergrande has been selling off property at discounted rates and further causing company stocks to plummet over the past year. This year, they have already missed a series of bond interests payment and there’s still more to come.
It is now looking more likely that Evergrande may default on their payments and potentially collapsing. BBC’s article goes in further depth on the potential impact that this collapse will have. Domestically, many people have put down payments ahead for unfinished homes. Furthermore, a network of companies survive off of Evergrande contracts, and an Evergrande collapse could mean that these companies could incur major losses. Currently, numerous smaller property firms have been affected. However, numerous other big Chinese real estate firms could default as a result of an Evergrande collapse. Lastly, perhaps the worrisome thought is Evergrande’s complex and deep connection to international markets and investors. Currently, Evergrande is indebted to 171 domestic banks and 121 other financial institutions. In addition, the whole picture of which foreign parties or groups have investment or ties to the Evergrande group is still quite unclear.
A potential global financial crisis as such serves as a reminder of the impact of our globalized and digitalized work—everything is of a large network— as is our financial market. We’re all more closely related to an event as such than we could ever think. Like the idea of six degrees of separation, we could be connected to the Evergrande collapse in 6 connections or less, meaning it could soon have an impact on our personal lives. Like the collapse of the Lehman Brothers in 2008, the collapse of Evergrande will not only have a catastrophic effect on the domestic economy but also for everyone around the world. Perhaps, further studies and documentation on the international financial market networks could be utilized to minimalize the impact of the collapse of an international giant.
https://www.bbc.com/news/business-58579833