Matthew Jacob Mancini
Chinese Real Estate Developer Causes Worldwide Selloff
September 21st, 2021
Chinese real estate company, The Evergrande Group (EGRNF), caused a massive selloff in international markets on Monday due to their $300 billion debt burden. A huge reveal that the company may be in the risk of default on its debt sent international markets tumbling and the S&P 500 to its worst day since May.
Evergrande Group is a real estate developer conglomerate based in Shenzhen. The company is ranked #122 on Fortune Global 500 and is the second largest Chinese property developer by sales.
According to David Gura from NPR, the company has seen a recent dip in sales but still needs to pay off its creditors. They attempted to do so by offloading buildings with little success.
In desperate need of cash earlier this year, Evergrande went to their disgruntled employees and asked them for short-term loans or else employees may lose their bonuses later that year. The company is also reported to owe $100 million to suppliers of cement, paint, rebar, and copper pipes and is responsible for finishing 1.6 million apartments.
China’s real estate markets have been booming for years with new developments popping up everywhere. Coupled with the middle class getting well-needed jobs and landowners getting a nice paycheck for parcels of land, the Chinese real estate market helped launch the economy forward to what it is today. However, home prices have shot up too high and the Chinese government is trying to slow things down.
A credit crunch with a company of this size will cause huge ripples around the world because investors are worried that the company cannot meet its debt obligations. Banks throughout the world hold parts of Evergrande’s debt, so not getting those loans paid could be troublesome.
The potential of defaulting on their debt means that more than 1.5 million customers could lose deposits on Evergrande homes that have yet to be built. Neither Beijing nor the Federal Reserve has hinted at a bailout for the company yet.
The company’s chairman, Xu Jiayin, has tried to quell fears by writing, “I firmly believe that Evergrande will walk out of its darkest moment and resume full-speed work and production” in a letter to the company, New York Times reported.