{"id":11028,"date":"2021-10-27T08:00:39","date_gmt":"2021-10-27T12:00:39","guid":{"rendered":"https:\/\/blogs.shu.edu\/thediplomaticenvoy\/?p=11028"},"modified":"2021-10-26T18:39:11","modified_gmt":"2021-10-26T22:39:11","slug":"chinas-evergrande-bites-the-dust","status":"publish","type":"post","link":"https:\/\/blogs.shu.edu\/thediplomaticenvoy\/2021\/10\/27\/chinas-evergrande-bites-the-dust\/","title":{"rendered":"China\u2019s Evergrande \u2018Bites the Dust\u2019"},"content":{"rendered":"<p><b>Andrea Gonzalez<br \/>\n<\/b><b><i>Staff Writer<\/i><\/b><\/p>\n<p><span style=\"font-weight: 400\">China&#8217;s Evergrande is facing a media crisis after missing several key payments in recent weeks, reports the <\/span><a href=\"https:\/\/www.nytimes.com\/2021\/10\/12\/business\/evergrande-homebuyers-debt-china.html\"><span style=\"font-weight: 400\">New York T<\/span><\/a><span style=\"font-weight: 400\">imes<\/span><span style=\"font-weight: 400\">. News outlets see the situation as paralleling the events that sparked Lehman Brother\u2019s catastrophic default in 2008, a catalyst in the global financial meltdown. Despite the turbulence, Xi Jinping&#8217;s government may not bother to save the company from a fallout that has already sparked hysteria among investors.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400\">The government&#8217;s strategy to control a previously laissez-faire economy threatens to destroy Evergrande.<\/span> <span style=\"font-weight: 400\">\u00a0In August, the Chinese government introduced the &#8216;three red lines&#8217; legislation to limit reckless loans, alleviate the over leveraged real estate sector, and prevent financial reckonings like the 2008 global crisis. Evergrande&#8217;s financial strategy consists of pre-selling contracts to investors who pay a deposit, sometimes 100 percent, and wait for the company to develop the project. However, the new legislation places great tension in Evergrande&#8217;s ambitious property developments.<\/span><\/p>\n<p><span style=\"font-weight: 400\">Evergrande\u2019s operations came to a halt after banks began restricting their loans. The real estate giant faces a capital crunch that has delayed payments to workers, third-party employees, and even its biggest bondholders. Now, thousands of Chinese investors are demanding reimbursement for their home deposits, according to <\/span><a href=\"https:\/\/www.irishtimes.com\/business\/construction\/chinese-property-developers-slump-as-evergrande-contagion-spreads-1.4694943\"><span style=\"font-weight: 400\">The Irish Times<\/span><\/a><span style=\"font-weight: 400\">. Evergrande is requesting a government bailout for their $330 billion debt as executives hope the company is perceived by the state as \u201ctoo big to fail,\u201d<\/span> <span style=\"font-weight: 400\">reports <\/span><a href=\"https:\/\/www.reuters.com\/world\/china\/looming-evergrande-bond-coupon-payments-intensify-contagion-fears-2021-10-12\/\"><span style=\"font-weight: 400\">Reuters<\/span><\/a><span style=\"font-weight: 400\">. Nevertheless, the lack of clarity regarding Evergrande&#8217;s investors leaves many people wondering who will take the collateral damage.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400\">Financial defaults from such a prominent property developer could have a lethal impact on the Chinese economy, and analysts caution overseas markets about a potential global crisis. In recent weeks, the firm lost over 80% of its value on the Hong Kong stock market. In an attempt to relieve investors, the company said it would pay off domestic bonds of $35.9 million, reports . However, they did not offer any insight into the colossal debt tied up in foreign bonds, raising eyebrows about a possible contagion effect in other industries. According to <\/span><span style=\"font-weight: 400\">, <\/span><span style=\"font-weight: 400\">a potential default may leave millions of people jobless, contractors in bankruptcy, and families out of savings.<\/span><\/p>\n<p><span style=\"font-weight: 400\">China and Evergrande blossomed together in the last three decades, making Chinese real estate a bastion for the development of generational wealth amongst the population. The real estate paragon turned many of China&#8217;s rural areas into prestigious urban complexes for the growing middle-class. Now, a <\/span><a href=\"https:\/\/www.youtube.com\/watch?v=mwyuHzKDMyI\"><span style=\"font-weight: 400\">South China Morning Post<\/span><\/a><span style=\"font-weight: 400\"> video shows a protester voicing her anger at Evergrande&#8217;s situation by threatening to &#8220;jump off a tall building&#8221; if the company does not return her deposit.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400\">Similar to the current situation in China, when Lehman Brothers collapsed in 2008, hundreds of American investors, whose lifetime assets were liquidated in the default, immediately took their own lives, according to The <\/span><a href=\"https:\/\/www.nytimes.com\/2008\/11\/07\/business\/07suicide.html\"><span style=\"font-weight: 400\">New York Times<\/span><\/a><span style=\"font-weight: 400\">. The crisis was a blow at America\u2019s promise of generational wealth, and small businesses and individuals today are still reeling from the fallout.\u00a0\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400\">Evergrande has offered to pay back, through installments, property or payables and hired top financial advisers to create a viable solution. However, default would rob millions of immediate recovery. If the company faces bankruptcy, property prices will fall, complicating its ability to finish projects or pay loans and causing the liquidation of more of the company\u2019s assets.<\/span><\/p>\n<p><span style=\"font-weight: 400\">Evergrande composes almost\u00a0 20 percent of\u00a0 China&#8217;s gross domestic product, and its current financial forecast has unleashed a media frenzy. Headlines project that Evergrande&#8217;s potential failure could take several banks down with it, and in turn has created an atmosphere of uncertainty around the full-scale ramifications of its collapse. A report from <\/span><a href=\"https:\/\/www.forbes.com\/sites\/miltonezrati\/2021\/09\/27\/chinas-evergrande-threatens-trouble-on-both-sides-of-the-pacific\/?sh=746f1a003a41\"><span style=\"font-weight: 400\">Forbes<\/span><\/a><span style=\"font-weight: 400\"> outlines how Nevertheless, in the world of finance and real estate, stability <\/span><i><span style=\"font-weight: 400\">usually <\/span><\/i><span style=\"font-weight: 400\">makes its way back.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400\">When COVID-19 hit, financial operations came to a halt, and China&#8217;s GDP shrunk 6.8 percent in the first quarter. In the United States, stocks plunged, causing companies to block trade when millions of investors began selling their positions, as reported by <\/span><a href=\"https:\/\/www.cnbc.com\/2020\/03\/31\/stock-market-today-live.html\"><span style=\"font-weight: 400\">CNBC<\/span><\/a><span style=\"font-weight: 400\">. The situation opened up a sea of opportunities for new investors who were willing to suffer momentary losses because the economy would inevitably have to recover at some point. According to <\/span><a href=\"https:\/\/www.cnbc.com\/2021\/03\/12\/a-stunning-fall-and-a-recovery-how-the-stock-market-has-evolved-one-year-since-covid-hit.html\"><span style=\"font-weight: 400\">CNBC<\/span><\/a><span style=\"font-weight: 400\">, a year after the pandemic began, young investors helped recover 79 percent from the lows of 2020.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400\">COVID-19 and Evergrande&#8217;s potential default are not so different. The parallel demonstrates people&#8217;s ability to reshape the financial arena. While Evergrande&#8217;s default would result in a devastating loss for millions of people and may even spill onto different industries, it does not equate to eternal failure for the Chinese economy. Nevertheless, Evergrande may be showing an even more important fact, China&#8217;s rapid economic growth\u00a0 has limitations. A real estate bubble to accelerate the nation&#8217;s economy is bound to have consequences for its wild financial model.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>China&#8217;s Evergrande is facing a media crisis after missing several key payments in recent weeks, reports the New York Times. News outlets see the situation as paralleling the events that sparked Lehman Brother\u2019s catastrophic default in 2008, a catalyst in the global financial meltdown. Despite the turbulence, Xi Jinping&#8217;s government may not bother to save the company from a fallout that has already sparked hysteria among investors.\u00a0<\/p>\n","protected":false},"author":5150,"featured_media":10989,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"colormag_page_container_layout":"default_layout","colormag_page_sidebar_layout":"default_layout","_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2261,7,386],"tags":[393,926,2267,2268],"class_list":["post-11028","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-october-2021","category-opinion","category-asia","tag-china","tag-opinion","tag-stock-market","tag-world-economy"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.4 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>China\u2019s Evergrande \u2018Bites the Dust\u2019 - The Diplomatic Envoy<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/blogs.shu.edu\/thediplomaticenvoy\/2021\/10\/27\/chinas-evergrande-bites-the-dust\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"China\u2019s Evergrande \u2018Bites the Dust\u2019 - The Diplomatic Envoy\" \/>\n<meta property=\"og:description\" content=\"China&#039;s Evergrande is facing a media crisis after missing several key payments in recent weeks, reports the New York Times. 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