Today: 3 June 2025
19 August 2023
3 mins read

China’s property woes deepen with Evergrande’s bankruptcy

A sudden shift in policy by China’s leaders two years ago has left the country’s property developers scrambling for cash, compounding financial risks within the world’s second-largest economy.

The filing for bankruptcy by Evergrande, Chinese real estate giant signals the beginning of Beijing’s real estate crisis, CNN reported on Friday.

It serves as a cautionary tale about the “growth-at-all-costs” model that underpinned China’s spectacular growth over the past 30 years.

For decades, Evergrande, once one of China’s most successful real estate developers, gobbled up debt as China’s economy exploded. Demand for housing was so strong, homebuilders often pre-sold apartment units to buyers before construction was complete, CNN reported.

But a sudden shift in policy by China’s leaders two years ago has left the country’s property developers scrambling for cash, compounding financial risks within the world’s second-largest economy.

As per CNN, the story of Evergrande’s downfall began in 2021, when the central government moved to curb excessive borrowing to try to slow the rise in home prices, effectively cutting off a major source of funding for property developers.

Evergrande, which had 300 billion USD in liabilities, couldn’t shore up cash fast enough to make its debt payments.

It defaulted in December 2021, triggering a market panic. A wave of defaults followed, and China’s vast real estate market has yet to recover. The building was suspended on dozens of projects, leaving many “pre-sale” buyers left with no new home and a hefty debt burden, according to CNN.

The steps that will be taken by Beijing to restructure billions of dollars in offshore debts have massive implications for China’s financial system.

Earlier on Thursday, Evergrande filed for Chapter 15 bankruptcy, which is a way for foreign companies to use US bankruptcy law to restructure debt. The process will take time, as Evergrande has roughly 19 billion USD in offshore debts.

Evergrande’s liquidity crisis was just the beginning of the pain. Other large builders in China have since defaulted as they struggle to shore up cash and demand for housing has fallen, CNN reported.

Notably, investors around the world are watching the development cautiously as Country Garden, which employs some 3,00,000 people, missed two payments on its multibillion-dollar debt and said it was considering “various debt management measures.”

The cash-strapped developer’s debt is now seen as a “very high risk” asset, according to Moody’s, which downgraded its rating on Country Garden last week, CNN reported.

Country Garden has until early September to make the payments it missed.

It’s hard to overstate the importance of the property market in China. The industry accounts for as much as 30 per cent of the country’s economic activity, and more than two-thirds of household wealth is tied up in real estate.

Xi Jinping delivers a speech at a ceremony marking the 100th anniversary of the founding of the CPC in Beijing, July 1, 2021. (Xinhua/Ju Peng/IANS)

But nearly three years of “Zero Covid” restrictions sapped China’s economic growth, and consumers have been reluctant to buy new homes in the face of higher unemployment and falling property values, as per CNN.

Notably, China’s economic engines have been sputtering after a brief surge in activity earlier this year.

Consumer prices last month fell for the first time in more than two years; youth unemployment has been rising so fast, Chinese authorities simply didn’t release the July data. Retail sales, export demand and factory production are all down as well, CNN reported.

While Beijing has made some efforts to help jumpstart demand for housing and free up cash for developers, the days of big, state-funded bailouts for bloated industries appear to be over. It also seems unlikely that China will bail these companies out.

“We must maintain historic patience and insist on making steady, step-by-step progress,” CNN quoted President Xi Jinping as saying recently. (ANI)

ALSO READ: China conducts military drills around Taiwan

Previous Story

Bushra Bibi fears ‘poison’ plot against Imran Khan in Attock jail

Next Story

Over 2,500 captives released in Ukraine-Russia prisoner exchange

Latest from -Top News

India Signals FTA with Oman

The talks for the free trade pact with Oman started in November 2023, and Goyal visited the Gulf country from January 27 to January 28….reports Asian Lite News Commerce and Industry Minister

Syria Strikes $7b Deal

The agreements, signed in the presence of Syrian leader Ahmed al-Sharaa, mark a total investment of 7 billion U.S. dollars…reports Asian Lite News – Syria signed a series of memoranda of understanding

More Killings in Palestine

Israeli occupation forces opened fire directly at hundreds of civilians as they attempted to reach an aid distribution centre in the al-Mawasi area of western Rafah At least 31 Palestinians were killed

Hamas Open to Fresh Talks

The movement said that it is ready to “immediately begin a round of indirect negotiations” to address the outstanding issues…reports Asian Lite News Hamas affirmed its readiness to begin indirect negotiations over

UAE aid for Gaza in global focus

Titled Hope Remains, the documentary brings to light the UAE’s leading role in providing vital aid and support to the people of Gaza. The International Humanitarian and Philanthropic Council has released a
Go toTop

Don't Miss

What does China-Russia bonhomie mean for India?

If India can pursue a degree of independence in its

Chinese provinces fail to reach growth targets

Ruptured industrial chain caused by COVID pandemic, pressure of carbon