Could Evergrande collapse topple China's economy? | DW News

we begin in china where embattled real estate giant evergrand faces a major moment of truth this week the company owes an estimated 300 billion dollars and exp and is expected to default on bond payments some of which are due this monday with more coming on thursday evergrad operates and develops 1300 real estate projects across china and employs 200 000 people the company financed its breakneck expansion with credit and bond issues the pandemic has paralyzed its operations its dead equates to two percent of chinese gross domestic product evergrande was always thought to be too big to fail now where have we heard that one before if it topples it could take a number of banks down with it like lehman brothers did in 2008. the risk of defaulting has prompted a sell-off evergrand stocks have lost 80 percent of their value since the start of the year family homes of the future are the bleak monuments to a spectacular business failure these residential buildings in the city of low young may never be finished construction had been moving slowly already reports of the impending crisis around evergrass gargantuan debt pile brought it to a complete halt those who bought apartments here for their families are worried that they will now never be completed we've been here three times and saw that the construction site and the tower crane have not moved so we came over to ask and they told us that we had to wait for news are you worried when you see negative news about everground i'm worried we all bought it ourselves with our hard earned money there are unfinished ever grand projects across china the company owes at least 300 billion dollars the crisis is causing panic in beijing with fears that a collapse could wreak havoc on the country's financial system at the evergrand oasis property showrooms in low young the lights showcasing dazzling displays of ambitious property developments are still flashing but the mood among evergrand employees is disconsolate china and they worry that their wages will not be paid although the bosses have said before that layoffs do not affect wages it's a question of how much time before they get paid after being laid off is known as one of china's four historic capitals but today it is at the center of a very modern chinese tragedy now for more i am joined at the table by our resident china expert clifford coonan i'm almost there clifford just wait welcome clifford you know what i want to ask the big question is evergrand going to default i think at this stage it's looking very likely and i think now what we're looking at is what form that default will take um whether it will be a wide scale default um or whether it will be a sort of a much more managed approach to things i think the key word here in this in this whole evergrand story is contagion uh what everyone's worrying about is whether ever grand situation will spill over into other areas of the real estate sector which accounts for 15 to 20 percent of chinese gdp which is a huge amount and whether that in turn then will will spill over into the broader chinese economy and cause much much uh more serious problems so we have to see whether the sickness will spread as such but evergrand has sought to compensate investors with real estate what do you make of that plan there is a kind of a whack-a-mole element about this that if you start giving people um real estate to pay for for debt um that ultimately you're just kind of masking a problem rather than addressing a problem which is actually just paying back interest rates and what we're possibly looking at is a kind of a credit crunch situation where it becomes very difficult to to borrow money and i think that's what everyone is particularly worried about and they also have promised to build 1.4 million homes that's still outstanding that's with small investors you have 170 or so um domestic banks around 120 foreign banks who wrote money so you've got a huge spread in terms of how evergrand's debt situation is working um and so i think by um also by creating supply by giving and by giving out property as a way of paying it back it it just exacerbates the problem in the sector as well and could indeed lead to contagion well guacamole is a notoriously difficult game but this has of course been described as a potential lehman brothers moment is beijing expected to step in and bail evergrand out yeah i think the lehman brothers comparisons are interesting i mean they owed about 613 billion when they collapsed in 2008 and then um we're looking at 300 billion here so lehman brothers was bigger um but the problem here i think is that we may be just looking at the tip of the iceberg we don't know exactly really how much is owed in the overall sector and the spillover effect within china we've been saying for many years that china's real estate market is over uh over leveraged that if there was ever going to be a problem in the chinese economy it was going to happen in the real estate sector and i think this is the biggest challenge that we've seen since the lehman brothers situation whether the government will intervene um i don't think the government will intervene directly because we're actually at the moment the political climate is is kind of pushing against pushing back against the tycoons uh there was you know a few years ago evergrande bought a football team with jack ma and they went on to win the asian champions leagues you know and but those heady days of where the tycoons ran everything are over and now i think uh what we're probably more looking at is maybe some kind of managed bailout but that could also be nationalization they may even allow evergrande to fall and then um use that as as a way to um to nationalize the industry certainly a lot of public anger there as well clifford coonan thank you very much

Channel: DW News

Views: 1,061,975

Keywords: DW News

Id: 7UoiO51BIIo

Length: 6min 19sec (379 seconds)

Published: Mon Sep 20 2021

Reddit Comments

[u/TGS-57]

Nope the Lehmann Brothers collapse are here..😱😱😱

[u/SilverBugRO]

If Evergrande's "colapse" would have been really harmful to China's economy , China would've intervened already .

Since the government sits nicely and smoke weed and drink whiskey or something, their economy will be fine.

It might even be a CALCULATED move this so called crisis,to divert attention from other issues,or to attack others.

Oh well ,what do I know.