The China Evergrande Centre in Hong Kong. (RNZ/AFP)
The China Evergrande Centre in Hong Kong. (RNZ/AFP)

The BulletinNovember 9, 2021

China’s ticking time bomb

The China Evergrande Centre in Hong Kong. (RNZ/AFP)
The China Evergrande Centre in Hong Kong. (RNZ/AFP)

Evergrande, a Chinese property giant, owes its investors hundreds of billions of dollars, it could mean trouble for New Zealand and the world, Justin Giovannetti writes in The Bulletin.

The story of Evergrande. Most New Zealanders have never heard of Evergrande, but ongoing money troubles at the massively indebted Chinese developer have set financial markets on edge around the world and raised fears that the company’s collapse could trigger a slump in China’s property market. That would be very bad news for a global economy still crawling out of a Covid-19 recession. The story of Evergrande over the past two months has been one of racing to meet deadlines for interest payments on its $300 billion debt as it teeters on the brink of failure, according to the South China Morning Post. The company is now trying to pay its suppliers in finished apartments instead of cash, which is not a promising sign.

Let’s take a step back, what is Evergrande? As the BBC explains, it’s both a massive real estate developer, with over 1,300 projects across China, as well as a conglomerate that owns financial companies, electric car businesses, food and drink makers, and one of China’s most popular football teams. All that was built on debt. This one company now owes its investors about 50% more money than the grand sum of New Zealand’s economy, give or take a few billion dollars. It’s a staggering amount and the company is struggling to meet interest payments. The company owes money to nearly 300 Chinese financial firms and its collapse could have a big impact on the world’s second-largest economy.

So why should I care about a Chinese property developer? The failure of another company most New Zealanders had never heard of, America’s Lehman Brothers, helped push the world into a global financial crisis. Once companies start falling and the underlying economy has a problem, like China’s incredibly high debt levels, bad things can happen. China’s developers together owe about $7.3 trillion in debt—that’s trillion, not a typo. However, Evergrande’s collapse might not happen. Business Insider reports that the company is likely too big to fail and experts expect the Chinese government to find a solution. The company has also been selling off assets in recent days, including a British electric car startup and its fleet of corporate jets.

The future will be a little messy and uncertain. The company is under a barrage of nearly constant deadlines to pay creditors and has resorted to paying at the last moment, minutes before extensions and grace periods on payments expire. The Guardian reports that some of its recent payments have come out of the personal bank account of its founder, Hui Ka Yan. Over the weekend, Reuters reported that another series of interest payments weren’t made, likely kicking off another 30-day grace period for the company to find the necessary cash. Banks, investors and governments around the world will now hope that another payment clears, likely minutes before this latest extension ends. If you keep seeing Evergrande in the headlines, this is why. One of the world’s most indebted companies is stuck in a rolling maul and if it ever drops the ball, a chunk of the global financial system might go with it.

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Mad Chapman, Editor
The Spinoff has covered the news that matters in 2021, most recently the delta outbreak. Help us continue this coverage, and so much more, by supporting The Spinoff Members.Madeleine Chapman, EditorJoin Members

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