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Evergrande Crisis

Leestijd: 2 min.

Brecht Soenen



Everyone probably remembers the 2008 crisis. Toxic loans were put into bonds, and therefore became worthless after a certain time. And because every bank in the world had these toxic bonds, this unleashed a veritable storm on the financial markets. The banks were suddenly on the verge of collapse. Even a bank like Lehman Brothers went bankrupt as a result. Others were helped via bailouts (i.e. our tax money). This crisis originated in the US. Now, 13 years later, events are again sending shock waves through the world. But this time it is coming from the side of China.


Evergrande is a huge real estate concern in China. This company has about 260 billion euros in outstanding debt, and has about 800 projects in 220 cities. Evergrande has 200,000 employees, and indirectly another 3.8 million. What we see happening now, may well become disastrous for the people. It's in hugely bad papers, and can't even pay the interest on their debts anymore. So bondholders will see no return on their investment.


If Evergrande goes bankrupt, the banks and other investors will be left with those debts. This could cause a storm in all Chinese companies and banks. The big fear now is, that there could be a domino effect that will spread around the world. It has now gotten to the point itself where they are paying creditors with real estate, with another 50% discount on top of that. It doesn't stop at real estate either, Evergrande is working on various things like electric cars. This branch of the company is also starting to falter, so they now have a huge backlog of salaries to pay. On the other hand, they are trying to sell subsidiaries, to get some more liquidity. The problem here is, Chinese cities immediately skew this money. As a counter-reaction, they have started to downsize their properties at a rapid pace, so that they can sell them and gradually pay off their debts. The goal is to have 39,000 apartments ready by January. To do this, they employ 89,000 construction workers, but it remains to be seen whether this will be achieved.


All this, of course, is causing turmoil in the markets. Trading in Evergrande shares on the Hong Kong stock exchange, meanwhile, has also been curbed. Many companies and financial institutions also have bonds from them. If these were to become completely worthless, a disaster would ensue that could well spread worldwide.

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