Evergrande, China’s second-largest property development company has been making headlines for its staggering $310 billion debt and its inability to repay loans. The size and importance of Evergrande’s debt cannot be overstated. By comparison, Russia’s total debt in 2020 was $270 billion.
Defaulting on Loan Payments
Today, Evergrande is on the brink of defaulting on loan payments which economists predict could have grave consequences for millions of customers in China. These hardworking investors, many of whom earn the equivalent of $1,000 per month, scraped together pre-sale deposits to buy 1.6 million condos that Evergrande has yet to build. Last week two Evergrande loan payments went unpaid. Officially, these debts will not be considered to be in default until after 30 days of not being serviced.
After years of borrowing to fuel the development of millions of new housing units in China, Evergrande is facing a major crisis. Evergrande’s 200 offices located throughout Mainland China are besieged by crowds of worried investors who fear they will never get the housing they paid for. To make this situation even more dire, Evergrande reports having 200,000 employees that have not been paid in several months.
Evergrande’s Comparison to Lehman Brothers
In 2008 investment bank behemoth Lehman Brothers faced a debt crisis that eventually brought this long-serving American institution to collapse. The demise of Lehman Brothers had significant negative implications for millions of American investors. Many never financially recovered as their life savings and retirement accounts were wiped when Lehman Brothers closed its doors. To add insult to injury, CEO, Richard Fuld, on his way out, paid himself a $484 million bonus after Obama gave money to the big investment banks to try and save them from financial ruin. The world is watching to see if China’s communist party will bail out Evergrande. Today, economists are asking if the Evergrande debt problem is China’s Lehman Brothers moment.
Stay tuned for more on Evergrande’s debt crises.
Elaine Allan, BA, MBA
Technology and Business Blogger
Vancouver, BC, Canada