ECONOMY
Evergrande bankruptcy: How could China’s real estate giant crisis impact the global economy?
The bankruptcy filing in the US will protect its assets while analysts ponder how the collapse could impact other economies.
Chinese property company Evergrande has gone one step further from its 2021 default and declared bankruptcy in the US. While protecting its assets as financial solutions are found, huge debts and constant losses are causing a crisis in the Chinese property sector.
Real estate is 30% of China’s entire GDP, making the slow demise of one of the biggest companies a serious worry.
The company ceased trading in 2021 and lost a combined $81.1 billion since.
What has happened to Evergrande?
Evergrande’s rapid two and a half decades of expansion have been fueled by large borrowing exceeding $300 billion. Historically, such a high level of debt was supported by lenient governmental regulations in China.
However, in 2020 the Chinese government implemented new regulations aimed at controlling the borrowing of real estate developers.
Evergrande failed to pay more than $1 billion of international loans the following year.
How could China’s real estate giant’ crisis impact the global economy?
The consistent losses tumult at the company havee knock-on effects in other sectors of the Chinese economy, which has been faltering this year.
In a bid to boost the world’s second-largest economy, the central bank of China cut interest rates last week. Deflating prices are also a worry for a country coming back from the pandemic as lower profits and consumer spending can harm employment.
The significance of property to the Chinese economy, the “most important single sector of the global economy,” according to Fitch’s James McCormack, could have big effects for other countries. A reduction in credit ratings or a weaker Chinese economy that has been famous for its global manufacturing could lead to increased prices should more companies go under and Chinese exports slow.