At the beginning of this week, the Hong Kong stock market is suffering the full force of the jolts of Evergrande, the Chinese real estate giant which is heavily indebted and on the verge of bankruptcy. Fears that could have negative consequences for the Asian economy.
Evergrande, a weakened giant
4% is the loss of the Hong Kong stock exchange at the opening of the week. The cause is the catastrophic financial situation of the Chinese real estate giant, Evergrande, whose debt, which now amounts to a height of 300 billion dollars, makes us fear a general bankruptcy which would leave other companies in the real estate sector, banks but also investors on the floor.
However, this situation is not new. Already in 2018, the Chinese Central Bank had placed the company on the list of conglomerates to watch due to an already massive debt load. Since then, several news items have exerted influence on the deterioration of the company’s financial health. In particular, the downgrading of the company’s credit rating by the major international rating agencies has made it more difficult to obtain credit.
Evergrande’s financial situation is therefore particularly delicate. Its bankruptcy would not only leave those who have invested large sums of money in a real estate market long considered as a safe haven, but it would also leave the company in a difficult position.
Impact on an entire financial system
A potential bankruptcy of Evergrande would also have consequences for the entire Chinese economy. Not only on the banks and investors that the company would no longer be able to repay, but also on the 200,000 people that Evergrande employs throughout China, not to mention the 3,500,000 others that the company indirectly supports, notably through its subcontractors, who are paid by IOUs that are now difficult to honour.
On the other hand, Evergrande is building 1.4 million homes for a total value of 160 billion euros. 160 billion. However, their completion is now on hold. Many Chinese buyers are therefore in limbo, and wonder if they will ever be able to occupy the apartments they have bought, and for which a large number of them have already made personal contributions. Several demonstrations took place in front of Evergrande’s headquarters in Shenzen, whose premises were partially invaded.
The Chinese government of Xi Jinping is strongly expected to address the issue. If a disorderly bankruptcy of Evergrande as well as a destabilization of the global financial system are not on the agenda, an answer must be brought as soon as possible. For the time being, China is proving to be rich and powerful enough to absorb the consequences of Evergrande’s bankruptcy.
Other companies in difficulty
The fall of the Hong Kong stock market is not only the fault of Evergrande, and other Chinese companies are also to blame. Several other large Hong Kong real estate groups, such as New World Development, which lost 11% of its value, are also to be watched. Meanwhile, in the insurance and industrial sectors, several companies have suffered losses ranging from 5 to 8%.
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