HONG KONG Evergrande Group built a real estate empire on a mountain of debt. Now the Chinese property giant is in trouble and fears it could destroy the global economy with it.
Uncertainty spurred a market sale this week and has raised concerns about a crisis similar to that created in 2008 by the collapse of US investment bank Lehman Brothers. Experts say such comparisons are exaggerated, not least because the Chinese government exercises a much greater degree of control even over private companies like Evergrande.
But the plight of developers could deal a serious blow to the world’s second-largest economy, as Beijing faces what could be one of its biggest pre-elections.
Evergrande limited to money has sold millions of apartments in China, growing into the middle class since it was founded in 1996 by billionaire Xu Jiayin, 62, and once the richest man in China. The company, headquartered in downtown Shenzhen, say has more than 200,000 employees, as well as about 1,300 projects in more than 280 Chinese cities.
For years, the model has worked.
Evergrande built the property, sold it long before it was completed to Chinese customers eager for either a new home or a safe place to invest their growing income, and the company then used the money to build more.
With the boom in the real estate business, it also branched out into theme parks, bottled water and football ownership.
Download NBC News app for the latest news and politics
It also amassed $ 300 billion in debt, equivalent to about 2 percent of China’s gross domestic product, making it the most indebted developer in the worldWith Now a slowdown in the property market and the efforts of the ruling Communist Parties to reclaim the Chinese economy have forced them to reckon with the Evergrande issues.
Sales are declining. Construction on some projects has stalled due to late payments. And company offices in China have been surrounded for weeks by angry protesters, many of them employees, who worry they may not get their investment in Evergrande’s property and financial products.
Beijing is reportedly asks local officials to prepare for the consequences of a total collapse.
Some see the unrest as a necessary check on China’s overheated real estate industry.
As the property sector spiraled out of control, it was very difficult to shut it down because it was such an important source of growth, Michael Pettis, a professor of finance at Peking University in Beijing, said in an interview with NBC News on Thursday. Maybe now we are starting to see the beginning of a long and very difficult process to make the property sector a more normal part of the economy.
The property sector has been central to China’s explosive growth in recent years, accounting for a quarter of GDP in a country in which high-savings households have few other safe places to invest — nearly 70 percent of Chinese house property is owned. in real estate.
But developers like Evergrande convinced that Beijing would support them if necessary have become overly expanded, raising funds to cover current debt obligations in a Ponzin-like manner, Sara Hsu, a US-based visiting researcher at Chinas Fudan University specializing in Chinese economic development, said in an email.
Evergrande has been trying to cut its debt for several years, and Chinese officials have long been seen as a potential systemic risk. The company narrowly avoided a $ 13 billion crisis last year. This month, he again warned of a failure as he tries to raise the money he needs to pay lenders and suppliers.
It has tried to raise cash by lowering property prices and firing other businesses in which it has expanded, including an electric vehicle unit that has not yet sold a single car. Some investors have been offered real estate instead of cash. In a letter to employees that was greeted with skepticism, Xu vowed this week that his company would emerge from the darkness soon.
NBC News turned to Evergrande for comment.
‘The game has changed’
Although the Chinese government has saved other very large companies from failing in the past, its strategy is changing.
This is reflected in Chinese leader Xi Jinpings’s joint prosperity campaign to address the country’s wealth gap, which spans everything from affordable housing to curbing children playing video games. Xi has also expressed the desire that economic expansion be driven more by high quality growth such as consumption and exports and less by vacant apartments.
Last year, Chinese regulators introduced three red lines aimed at forcing real estate developers to improve their financial health.
Experts point out that if the Evergrande collapses, it is because the Chinese government is allowing it. The challenge for Xi is how to reduce industry debt and curb runaway housing prices, while also protecting China’s wider economy.
Analysts have already lowered the country’s growth forecast for the year, and investors will worry that the Evergrande crisis may not be an isolated event.
It is simply a bloated sector, said Alicia Garcia-Herrero, Asia-Pacific chief economist at Natixis in Hong Kong, in a telephone interview on Thursday. It should be reduced, but reducing China’s growth rate will undoubtedly suffer, there is no doubt about it.
The growing consensus is that while Beijing cannot save the Evergrande itself, it will move to protect home buyers as well as smaller banks that could be destabilized by a default. Foreign investors are more likely to be left out in the cold.
They will not intervene and guarantee everything because they have tried to remove from the system this dependence on debt and property speculation, Pettis said. But on the other hand, they can not allow everything to collapse because it can spread very quickly.
U.S. officials have downplayed the risk Evergrande poses to global markets. Federal Reserve Chairman Jerome Powell said the company’s debt crisis looks very special to China.
There is not much direct exposure of the United States, the big Chinese banks are not extremely exposed, he said told reporters Wednesday after the two-day Fed policy meeting. But you would worry that it would affect global financial conditions through channels of trust and things like that.
Hsu also said that while Evergrande is likely to default on its offshore bonds in the coming weeks, the impact on the US economy would be minimal.
For China, what happens next is not a series of defaults between its big developers, but those developers will behave much better, Garcia-Herrero said.
The game has changed and they need to understand that.
The mention sources can contact us to remove/changing this article
What Are The Main Benefits Of Comparing Car Insurance Quotes Online
LOS ANGELES, CA / ACCESSWIRE / June 24, 2020, / Compare-autoinsurance.Org has launched a new blog post that presents the main benefits of comparing multiple car insurance quotes. For more info and free online quotes, please visit https://compare-autoinsurance.Org/the-advantages-of-comparing-prices-with-car-insurance-quotes-online/ The modern society has numerous technological advantages. One important advantage is the speed at which information is sent and received. With the help of the internet, the shopping habits of many persons have drastically changed. The car insurance industry hasn't remained untouched by these changes. On the internet, drivers can compare insurance prices and find out which sellers have the best offers. View photos The advantages of comparing online car insurance quotes are the following: Online quotes can be obtained from anywhere and at any time. Unlike physical insurance agencies, websites don't have a specific schedule and they are available at any time. Drivers that have busy working schedules, can compare quotes from anywhere and at any time, even at midnight. Multiple choices. Almost all insurance providers, no matter if they are well-known brands or just local insurers, have an online presence. Online quotes will allow policyholders the chance to discover multiple insurance companies and check their prices. Drivers are no longer required to get quotes from just a few known insurance companies. Also, local and regional insurers can provide lower insurance rates for the same services. Accurate insurance estimates. Online quotes can only be accurate if the customers provide accurate and real info about their car models and driving history. Lying about past driving incidents can make the price estimates to be lower, but when dealing with an insurance company lying to them is useless. Usually, insurance companies will do research about a potential customer before granting him coverage. Online quotes can be sorted easily. Although drivers are recommended to not choose a policy just based on its price, drivers can easily sort quotes by insurance price. Using brokerage websites will allow drivers to get quotes from multiple insurers, thus making the comparison faster and easier. For additional info, money-saving tips, and free car insurance quotes, visit https://compare-autoinsurance.Org/ Compare-autoinsurance.Org is an online provider of life, home, health, and auto insurance quotes. This website is unique because it does not simply stick to one kind of insurance provider, but brings the clients the best deals from many different online insurance carriers. In this way, clients have access to offers from multiple carriers all in one place: this website. On this site, customers have access to quotes for insurance plans from various agencies, such as local or nationwide agencies, brand names insurance companies, etc. "Online quotes can easily help drivers obtain better car insurance deals. All they have to do is to complete an online form with accurate and real info, then compare prices", said Russell Rabichev, Marketing Director of Internet Marketing Company. CONTACT: Company Name: Internet Marketing CompanyPerson for contact Name: Gurgu CPhone Number: (818) 359-3898Email: [email protected]: https://compare-autoinsurance.Org/ SOURCE: Compare-autoinsurance.Org View source version on accesswire.Com:https://www.Accesswire.Com/595055/What-Are-The-Main-Benefits-Of-Comparing-Car-Insurance-Quotes-Online View photos
to request, modification Contact us at Here or [email protected]