Threatened with bankruptcy, the Chinese real estate giant Evergrande faces a mountain of debt. To date, the group owes a staggering sum of more than 280 billion francs to its creditors – a sum comparable to the 2020 GDP of Denmark or Egypt.
The Chinese Ministry of Housing has reportedly informed the country’s major banks that the group would not be able to honor the repayment of interest on its loans due at the weekend, Bloomberg reported on Wednesday.
The announcement portends a default that could send a dangerous shock wave through the Chinese economy, and even beyond.
Growth supported by the authorities
The Chinese cityscape has been dotted with Evergrande cranes for decades. The number two in construction has largely fueled the development of a sector used by the authorities to create economic activity and stimulate the “miraculous” growth of the country.
Supported by power, the frenzied explosion of housing has gone hand in hand with an artificial take-off in prices: many Chinese are throwing their savings into stone as an investment. It is not uncommon for some families to own more than one apartment. The speculative bubble engendered preoccupies the authorities which, anxious to see it burst, have been trying to control it for years. Such a scenario would have devastating effects on the world’s second-largest economy, undermining social stability.
Hundreds of angry investors
Since the start of the week, hundreds of investors have demonstrated in front of the conglomerate’s headquarters in Shenzhen, in the south of the country. All are demanding reimbursement of equity advances paid for the purchase of future homes.
Evergrande used to collect a percentage of the sale price even before the actual construction of the buildings. A method of financing banned last year by Beijing as part of a package of measures to fight against real estate speculation. Since then, the group has been deprived of an important source of income.
A note degraded several times
In addition to housing, the company had also diversified, investing in the automotive industry, the leisure industry, sports and events. It also offered various financial derivative products that are now threatened with losing most of their value.
In recent weeks, the major rating agencies have downgraded Evergrande’s rating on several occasions, the value of certain bonds having fallen by 75%. Its market capitalization has for its part been divided by four since the start of the year.
Towards a Chinese-style subprime crisis?
Some analysts warn of a Chinese-style subprime crisis, drawing a parallel with the Lehman Brothers bank, whose collapse led to the financial crash of 2008. The US government at the time refused to come to its aid by guaranteeing subprime mortgages. A global economic crisis followed.
The Chinese power is reluctant for its part to intervene, eager to be firm to send a signal and discipline developers and banks. The state no longer wants, as it has for years, to be seen as an implicit guarantor. However, it is difficult to imagine that the Communist Party, obsessed with social stability, can actually stand idly by in the face of the systemic risks involved. The authorities would have taken the lead by calling the banks to an emergency meeting before the end. of the week.