China’s second-largest real estate company, Evergrande Group, is in serious trouble. Investors and the general business community are anxiously awaiting Beijing’s offer to rescue the failing behemoth.
Evergrande, founded by Xu Jiayun, has been a symbol for China’s success. Already thousands of Chinese home-buyers are worried about its default. It’s not just this. Failure of Evergrande could have devastating economic consequences for several companies associated with the real-estate major. Analysts said that many could be jobless. The company employs more than 1.23 lakh people.
ABC News reported that China Evergrande was once a symbol for glittering success in one of the most exciting property markets on the planet. However, it is now sinking and dragging with it many of its competitors as global investors and creditors try desperately to escape the troubled Chinese property sector.
The real problem is now. The Evergrande crisis highlights a larger problem: the unsustainable and high debt many Chinese companies may be facing at a time when the global economy is in a state of flux due to the Covid 19 pandemic, shifting geopolitical boundaries and other factors.
Voice of America stated that Chinese companies defaulted on debts of more than $20 billion in 2019 and 2020. Analysts believe that 2021 will be a new record.
India Narrative spoke with two analysts who pointed out that this isn’t just about the Chinese private sector. Questions over the financial health of government-owned firms have also been raised.
The estimated Chinese corporate debt of $1.3 trillion would be due within 12 months.
VOA quoted Doug Barry as saying that China’s Achilles heel is its debt, private or public, and that accounting practices and reporting are murky.
Within days of China Huarong Asset Management’s collapse, the Evergrande fiasco swept through the Chinese corporate world.
The Chinese state-owned companies have rescued the asset management company that was in serious financial trouble last month. However, the Chinese authorities are yet to give any indications about their plans for Evergrande. Evergrande “has been selling assets in a hurry to satisfy lenders,” VOA reported.