The real estate developer, the Chinese company Evergrande, is currently facing bankruptcy, and due to its impressive size, financial analysts have often compared it to the American investment bank Lehman Brothers, whose collapse triggered the previous global financial crisis more than a decade ago. TV3 News explains whether there are grounds for concern about similar cataclysms this time as well?
Disgruntled people gathered at Evergrande’s headquarters, China’s second-largest real estate developer, this week, but the entrance was blocked by law enforcement. Some of them held a sign with the words “Police are collecting evidence”. Later, law enforcement officers were seen carrying cardboard boxes out of the building.
It turns out the company is heavily indebted and is facing bankruptcy with a potentially far-reaching impact on the rest of China’s economy. Founded in the 1990s, the real estate developer has grown at a fantastic pace over the years, and the Evergrande Group has become a huge conglomerate with a wide portfolio, from the electric car business to China’s most famous football club.
Just a few numbers to sketch the scale. More than 200,000 employees, indirectly created 3.8 million jobs, developed 1,300 projects in 280 cities, but most importantly – debt is about 250 billion euros or 17 times more than, for example, Latvia’s public debt.
Evergrande has grown rapidly on debt and has had difficulty repaying its liabilities in recent years. International investors have also invested in the company, but most of the company’s liabilities are domestic. Importantly, not only professional investors have invested, but also Chinese households that have paid for housing that has not yet been built. This is causing widespread dissatisfaction among the population.
Xiaoxin Zhan, a resident of Shenzhen
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“Think! If people talk about this a lot and loudly, then the government should solve it. This is no small thing.
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“If the government does not intervene, this scandal will affect too many people. I believe that the government should intervene, “said another citizen of Shenzhen.
The government’s decision to rescue Evergrande does not seem credible. The company’s woes are largely caused by Beijing itself. Construction has played a major role in China’s rapid growth story in recent decades, but it cannot be relied on forever. The government, in an effort to diversify the economy, has turned against the huge real estate sector, limiting opportunities to live on debt. More reliable possible assistance to affiliated companies and affected households.
Although Evergrande’s woes are primarily China’s own problem, the world’s economy is interconnected. The question of what the international impact might be.
In some cases, Evergrande’s situation has been compared to the bankruptcy of the now infamous US financial giant Lehman Brothers in 2008, which played a major role in the overall global economic crisis.-
What is the possibility that the collapse of Evergrande could lead to further waves of bankruptcy, a profound response to the financial markets and further repercussions elsewhere in the world, such as in Europe? Latvian economists do not sketch too gloomy.
Andris Strazds, Economist, Bank of Latvia
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“This is China’s mini-Lehman moment, but at the same time there is no reason to worry about a global crisis of this magnitude, because China is not nearly as integrated into financial markets as the United States.” In a way, we can be cynically happy that this level of problems in China arises before China becomes part of a very integrated global financial market. ”
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From the outside, it is now being observed how Beijing will be able to control and maintain this problem only within the framework of the Evergrande.
