Evergrande faces bankruptcy: Banks are trembling – and many Chinese families fear for their money.
China’s second largest real estate company, Evergrande, is facing bankruptcy. Stock and bond prices have fallen in the past few days. Evergrande is not just a company: according to its own statements, it employs a total of 200,000 people. The company is a heavyweight in the Chinese economy.
Investors fear the collapse of the real estate company, which is groaning under a mountain of debt of about $280 billion – roughly equal to Finland’s GDP. There is also concern that bankruptcy will send shock waves through the Chinese banking system.
But how did the real estate company face such difficulties? “Evergrand is not a very transparent company, just like China in general is not a very transparent country,” says ARD correspondent Stephen Wurzel. It is therefore difficult to evaluate operations from the outside.
He tells the reporter that there is currently an eloquent silence about what is going on in the state-controlled media. Many questions remain open.
But one thing is clear: Evergrande has simply taken over. “The group has grown excessively and probably too quickly,” Wurzel says. Shares of Evergrande lost about six percent and fell to their lowest level since 2014. Shares of other real estate groups also fell.
Private customers are worried about money
The significance of the huge company, called in Chinese “Hengda”, is enormous. “Everyone in China knows the real estate company: they build apartments, apartment complexes, high-rise buildings – all over the country.”
Evergrande has also been investing in more rural and less developed areas of the giant empire for years. In particular, there is a widespread fear among the people that they will lose their money now. Since Chinese real estate giants are financed largely through down payments: “Many people give money to real estate investors and trust that they’ll have a great apartment within a few years,” Wurzel explains.
Is Beijing a good example?
So far, the system has largely succeeded, even if there have been sporadic bankruptcies and bailouts. Many Chinese are worried that it will now hit the giant Evergrande.
And how should it continue now? Wurzel has discussed this question with several analysts. One possible scenario: Beijing allows the Evergrande bankruptcy to set an example. However, the state can save some shares so that social tensions do not arise – because more than a million families nationwide could lose their money.
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