Evergrande employs 200,000 people, has a presence in more than 280 Chinese cities and claims to have indirectly created 3.8 million Chinese jobs. It is primarily a property developer, but has been buying on a large scale for over ten years.
Evergrande may not be a bank like Lehman Brothers back then, but a bankruptcy would have profound consequences for China’s economy, just about the main growth engine of the world economy. Significantly, the company hired experts from financial services firm Houlihan Lokey, which also advised on the restructuring of Lehman Brothers.
Housing is an important component of the Chinese economy, and just like the Belgian, the Chinese also have a brick in the stomach. There have been warnings for years about the bursting of the Chinese real estate bubble. An Evergrande bankruptcy could set the dominoes in motion and also threaten to endanger China’s internal stability.
There are signs that the Chinese government would now be prepared to intervene and limit the damage for precisely this reason. But the problem is not from yesterday. Evergrande has been in serious financial trouble for some time now. Beijing authorities realize that this is just the tip of the iceberg. It is expected that they will now tackle the real estate sector with a big broom, to avoid a repeat of this scenario.
–
