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Next recession in world Economy | Evergrande’s Debt Crisis

Evergrande's debt crisis

Would China led the world in next financial crisis?

China became the only major economy to grow while most global economies were hit hard by the Covid-19 pandemic. Then what is the china’s new crisis that would lead the world economy is another recession.

In 2008, when Lehman Brothers collapsed in the US, the whole world witnessed the financial meltdown.

Similarly in 2021, just after the world has been through the economic rollercoaster of the COVID-19 pandemic, China’s Evergrande is the next financial crisis that the market is seeing.

World have seen the rapid changes in china’s infrastructure in past 2-3 decades. The Real estate giants have major role in development of China’s infrastructure and growth in GDP.

In past one year, Stock of the real estate giant Evergrande’splunges more then 80%. Evergrande is the world’s most indebted property developer, Which has total liabilities of around $300 billion.

Evergrande logo
Evergrande stock chart

How big is Evergrande

The Evergrande Group is the second largest property developer in China by sales. It ranked 122nd on the Fortune Global 500.It was founded by Xu Jiayin in 1996, Its headquarter is in Houhai. It sales apartments to upper and mid range income holders.

Evergrande have real state market in 22 cities of china with total 565 million square metres of development land.

Evergrande’s owned other businesses also like Sports, Tourism and recreation, Health, Automotive, Entertainment, Food and Finance.

Evergrande headquarter

Evergrande’s Debt Crisis

Evergrande’s debt crisis will slow down China’s economic growth, And can pull down country’s whole financial system. Its stock prices down by 80 % and its bonds have also been downgraded by global credit ratings agencies. It faces with nearly 800 unfinished residential buildings, And over a million home buyers with unfinished home’s and partial payments.

Last one year data is shown in below chart with comparison to china’s housing market.

Evergrande stock price chart

                                             Evergrandes Stock Price

With total liabilities of more than 300 billion dollars, The Company has been struggling to pay its suppliers, and warned investors it could default on its debts.

The default in payment of lenders will lead in slow down of many ongoing projects, and it have impact on real economy of china and could spread over world economy.

China's housing price chart

                                              China’s Housing Price Chart

So the real property market will have an impact on the GDP growth rate for the coming year because of slower finance for the whole sector.

To overcome this crisis of Evergrande’s, Government of china has planning to liquidate funds in the real estate sector thru central bank of china. Govt also added that China became the only major economy to grow while most global economies were hit hard by the Covid-19 pandemic, and similarly they will overcome with this real estate crisis too.

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