A Hong Kong court has ordered one of China’s biggest property developers, Evergrande Group, to liquidate after it was unable to reach a restructuring deal with creditors over hundreds of billions of dollars it owes.
Key points:
- Evergrande has been ordered to liquidate after failing to come up with a restructuring deal with creditors over US$300 billion in debts owed
- The liquidator will now attempt to take control of Evergrande assets outside China, but there are fears that could pave the way for other lawsuits
- It could take years for the offshore liquidator to take control of subsidiaries across mainland China
China has a GDP of $12.5 trillion.
If someone deleted 2.5% of your net worth including assets from your bank account you would notice and be annoyed.
Not a property developer! Harcourt, fetch me my clutching pearls!
Yeah I didn’t own a house in 2008 so that whole financial crisis thing had zero impact on me 🤔
Real Estate represents something like 30% of China’s total GDP and Evergrande was one of the top 3 largest Real Estate developers in China. Country Garden is / was another of the Top 3 and it too is in default with a debt problem almost as bad as Evergrande.
Those two former behemoths aside China has seen literally dozens of smaller Real Estate developers default and go under over the past 36 months and it’s having painful consequences on downstream industries, consumers, and government budgets.
This ain’t “Pearl Clutching”, Evergrande is just the latest visible indicator that there’s a serious problem with the Chinese Economy.
Evergrande halted trading on Chinas stock exchange for like over a year and a half.
China gave them time and money to not fail, but it was too late. Now the sticthing is coming undone.
Their stock was halted again today:
So, too big to fail, huh? I see where you’re at.
So, too big to fail, huh? I see where you’re at.
Oh no, they are failing. Are in fact failed at this point.
and have global effects
I’ll take “Shit that Doesn’t Effect Me at All”, for $400 Alex.
Oh you sweet summer child
That category is sparser than you might think. If China’s economy collapses you will definitely see an affect on what you pay for stuff. And there’ll be other geopolitical impacts too, as the countries around the world readjust priorities to account for this change.
I’m fine with paying more, if it doesn’t come from China.
Okay, so you’re fine with it. Bully for you. There are a lot of people in your society who are living much closer to the edge and will find themselves in a lot of trouble if prices for the stuff they need go up.
The point of why this is a problem is ripple effects. None of us own shares in Evergrande. But Evergrande’s collapse could cause such big ripples that it’s bound to affect us anyway, even way out at the fringes of seemingly unrelated economies. Your lifestyle may not be impacted directly but you’ll find yourself wondering “why are there suddenly a bunch of wars in southeast Asia?” Then “why are gas prices through the roof?” And then “why are all the prices through the roof?” And finally “why are the poors rioting in the streets and burning my house? Don’t they know how expensive it is now?”
Then “why are gas prices through the roof?”
You mean, “Why are gas prices so damn low?”, because a giant economic recession in China will CUT gasoline prices as huge swaths of Chinese citizens run out of money for gasoline cars and switch to busses or other cheaper forms of transit.
Economic calamity causes lower gasoline prices typically.
Its not all bad. The real issue is that bad loans can be transferred to other countries through unknown means. Ex: Apple may have had some Evergrande bonds for some real estate issue in China, and then Apple suddenly loses a lot of money affecting S&P500 funds and then cutting people’s 401k accounts or something.
But economic calamity == less consumption of gasoline (fewer trips, fewer vacations, fewer cruises) == lower gas prices typically. As some people like to point out: all an economic recession is, is when the value of cash grows dramatically (meaning the value of everything else: vacation packages, luxury cars, technology, etc. etc. declines). This “everything else” includes oil, because when no one is going on vacation, oil builds up faster than we can use it.
It could shoot back up when the Strait of Malacca gets blockaded, or when it turns out that major oil production companies depend on Chinese-made equipment, or when Russia collapses and stops selling oil to India because China dropped its military support for them, or any number of other possible knock-on effects.
The exact details are not the important thing in what I was talking about. The point is that China’s economic woes will have an effect on you, not what precisely what those effects will be.
And my point is that effects are often deflationary. IE: The great depression dropped the price of goods.
That means when one country has an isolated recession or isolated depression, its something the rest of the world could easily benefit from. Its not all bad. The full effects are extremely unpredictable, and assuming worst-case scenario over-and-over is counterproductive.
Deflation is bad for people too.
While you’ve argued your way into one partial example of a benefitial effect, you completely lack even remote capacity to properly explain the overall effect of a supposed real estate crisis in China. Spoiler alert: nobody has this capacity. Even the whole Hayward’s econ department with all the computers you could give them.
Yet, there’s an overwhelming historical evidence: big recessions in key world economies lead to recessions in linked countries. So, I’d say, buckle up.
How do you think an American real estate scam made on wall street made Greece to almost default? And the effect was instantaneous even.
This Evergrande business has been hanging in the air for years now. I wonder what this news means in practice.
Same. I feel like I’ve been waiting for this Sword of Damocles to fall for the last decade. Until they actually break up, however, I’m still curious to see the ramifications.
China should have just ripped the bandaid off years ago.
I wonder if ripping it off might have caused a big enough economic problem to threaten the stability of the government.
They probably weighed what would happen then vs supporting the business for a while. Problem is no one can tell the future, so they got caught.
It may be the best case scenario for them still. This could be their “economic soft landing”.
