Teetering property developer Evergrande sparks contagion fears for China’s
Property developer China Evergrande Group is teetering on the brink of collapse, weighed down by a giant debt load and billions of dollars in real estate it can’t sell as quickly or as profitably as anticipated.
While trouble has been brewing for a year, it’s coming to a head now, as the conglomerate missed one loan payment in June and more are expected. Evergrande’s offices were the site of angry protests this week, and things could get even uglier on Monday when the company is likely to miss another key interest payment to its increasingly concerned financiers.
Evergrande’s possible collapse is sparking fears that it could take other parts of China’s housing market down with it — and impact business interests outside China, too.
Here’s a brief explainer of what you need to know about the story.
What is Evergrande?
Founded in 1996 in the Chinese city of Shenzhen, across the border from Hong Kong, Evergrande is mostly a property developer whose core business is buying up land and turning it into residential real estate. Company founder Hui Ka Yan is a former steel worker who rode China’s 21st-century real estate boom to a fortune that was at one point last year worth $30 billion US, good enough for the title of third-richest man in China.
The company has built more than 1,300 housing developments in 280 cities in China, with plans for another 3,000 projects underway in various cities across the country.
But like any good conglomerate, it has expanded into all sort of other businesses, including bottled water and food, electric vehicles, theme parks, a Netflix-like streaming service with almost 40 million customers — and even a professional soccer team.
Why is it in trouble?
Debt — and lots of it. The company has almost two trillion yuan of debt on its books, the equivalent of more than $300 billion US. The company aggressively borrowed money to buy more land to develop, and sold apartments quickly at low margins to raise enough cash to start the cycle again — which works fine as a business model, until it doesn’t.
In late 2020, new rules that brought more scrutiny to the company’s finances revealed higher-than-expected debt loads. That, coupled with mounting construction delays, spooked buyers, setting up a vicious cycle. The company began its descent to pariah status as lenders and buyers lost their nerve in lockstep with each other.
Every attempt by Evergrande since then to distract from its problems only served to draw more attention to them. Lenders became more and more unsettled. Existing owners got upset. New sales slowed, which created a feedback loop that got lenders even more jittery.
Buyers at Chinese property developer Evergrande are demanding answers from the company management, as fears mount that the company may collapse under its debt load. (David Kirton/Reuters) 0:34
In June, the company admitted…
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