What is Evergrande?
Founded in Guangzhou in 1996 Evergrande is China’s second-largest land developer that posted $110 billion (US) in condo sales in 2020. In 2009 Evergrande was listed on the Hong Kong stock exchange becoming a publicly traded company. But recently Evergrande has been in the headlines for owing creditors $310 billion (US). This has set off a flurry of Chinese investors flooding into Evergrande’s 200+ offices located around China, demanding that Evergrande repay their pre-sale deposits.
How Much Does Evergrande Owe?
Financial analysts estimate that Evergrande owes its creditors $310 billion (US) which accounts for 2% of China’s gross domestic product. Evergrande is now required to make two loan payments, the first payment was due yesterday. Evergrande failed to make the first payment although it will take 30 days before the missed payment will be in default. This missed payment is of great concern to economists.
Financial contagions refer to the spread of financial disruptions, that expose the vulnerability of domestic markets when there are downturns in the global economy. Economists are busy reviewing the Evergrande meltdown for financial contagions. For creditors outside China, the exposure isn’t too daunting. It’s estimated that only $20 billion (US) of the total $310 billion (US) debt Evergrande owes to creditors and suppliers is held outside China.
Evergrande’s Risk to China
Evergrande owes money to 128 banks and 121 financial institutions in China that total more than $280 billion (US). If Evergrande defaults on its loan payments it might present systemic risks to China’s financial system.
Elaine Allan, BA, MBA
Technology & Business Blogger
Vancouver, BC, Canada