How would Evergrande’s failure affect China’s economy?Ī campaign by the central bank to tame real estate debt and reduce the banking sector’s exposure to troubled developers should mean that an Evergrande failure would have less of an impact on China’s financial system. Yi Gang, the central bank governor, has indicated that Evergrande was not likely to get a bailout. To emphasize this point, China’s central bank has blamed Evergrande’s “own poor management and reckless expansion” for its problems and said the crisis was limited to Evergrande. So far this year, at least 11 developers have already defaulted on bond payments. When it comes to developers, the authorities have until now been resolute about not stepping in. Eventually, though, Evergrande ended up with more debt than it could pay off.
Xu’s connections likely gave creditors more confidence to keep lending money to Evergrande as it grew and expanded into new businesses. The company’s billionaire founder, Xu Jiayin, is a member of the Chinese People’s Political Consultative Conference, an elite group of politically well-connected advisers. This put Evergrande at the center of power in an economy that came to lean on the real estate market for supercharged economic growth. The company, founded in 1996, rode China’s epic real estate boom that urbanized large swathes of the country and resulted in nearly three quarters of household wealth being tied up in housing. Now Evergrande is seen as a rickety threat to China’s biggest banks. It became so big and sprawling that it has a unit that makes electric cars, though it has delayed mass production.
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In its glory days a decade ago, Evergrande sold bottled water, owned China’s best professional soccer team and even briefly dabbled in pig farming. As a result, it will have to be across jurisdictions, which will make it highly complex.” How did Evergrande become such a problem? “There isn’t a clean, single legal mechanism that can be implemented to restructure the group. “Evergrande is complex and has entities in companies both inside and outside the People’s Republic of China,” said Daniel Anderson, a partner at the law firm Ropes & Gray in Hong Kong.
Investors could go after assets overseas, but the process could be messy. Things got so bad that the company paid its overdue bills with unfinished properties and asked employees to lend it money.Įvergrande said it would “actively engage” with its foreign creditors to come up with a plan for restructuring - the often long and drawn out process of stripping a company down and selling off its parts to pay everyone off. It also has more than $300 billion in financial obligations, hundreds of unfinished residential buildings and angry suppliers who have shut down construction sites. Evergrande has said that officials from several state-backed institutions had joined a risk committee that would help the company restructure itself.Įvergrande is a huge real estate empire with millions of apartments in hundreds of cities across China. Now, it looks to be facing the biggest corporate restructuring in Asia.įitch Ratings, a credit ratings firm, has said the Chinese developer is in default of its obligations. In China, Evergrande, a sprawling real estate developer, is that company.Įvergrande has the distinction of being the world’s most debt-saddled developer and has been on life support for months. Every once in a while, a company grows so big and messy that governments fear what would happen to the broader economy if it were to fail.
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