The collapse of Evergrande Real Estate—-the influence for China and the world’s finance

  • Author: Peacelv
  • Editor: Jenny Ball

Evergrande’s total debt is indeed huge, and if Evergrande collapses it will have a huge impact on the financial market of China and the world as well as the upstream and downstream supply chain of Evergrande, this is a fact.

Evergrande debt is very large, if  the central government wants to give it the underwriting, it is completely doable, but it would need the local governments to carry the splitted debts. But if the Evergrande’s problem had been solved this way, Shanghai’s Greenland is waiting to be bailout, Greenland’s debt is much smaller in scale than Evergrande and is still a state-owned mixed ownership enterprise.  So if the government helps Evergrande, should Shanghai Greenland be bailout or not? And after Shanghai Greenland is saved, would Country Garden be saved or not? Country Garden existing debt level is second after Evergrande, and will other real estate companies be saved?  So CCP government needs to take out far more tax revenue than a year to save the real estate industry. China’s annual GDP is 14 trillion dollars, while the real estate bubble has reached 95 trillion dollars, which is the sum of the GDP including the United States, Britain, Japan, France, Germany, Australia and other developed countries, besides China.

For global investors, the focus of attention this week is on Chinese real estate developer Evergrande Group, which is in danger of defaulting on its heavy debt load, according to the Canadian Broadcasting Corporation (CBC).

Evergrande Group is currently more than $300 million in debt and is struggling to meet Thursday’s (23rd) deadline to make two of its many bond payments.

There is a 5-year US dollar bond that needs to be paid for about $83 million in interest, and failure to pay within 30 days will constitute a default.

Another domestic bond is 232 million RMB, about 36 million USD interest is required to be paid today (23rd), market statistics involve more than 200 million, Evergrande indicated that it will pay as scheduled.

In addition, Evergrande also has a 7-year USD bond due to pay US$47.5 million interest on September 29. At present, Evergrande has not yet announced the interest arrangement for these two USD bonds.

With the fermentation of the incident, Evergrande (0333) overseas debtors gradually are exposed, the Japanese pension fund, international financial institutions BlackRock, UBS and HSBC (00005) are on its list. Bloomberg pointed out that there is also a British investment institution Ashmore. Ashmore holds about 400 million U.S. dollars, BlackRock holds 3.13 million Evergrande bonds, accounting for 1% of the company’s assets, the size of nearly 400 million U.S. dollars. HSBC also increased its holdings by 40% in July, but the weight of the portfolio is about 1.22%, about 200 million U.S. dollars. UBS increased its holdings by 25% in May to nearly US$300 million. Besides these four, Fidelity Investments (Fidelity), Pimco and Allianz (Allianz ) cut 47% in the first half are also involved in a number of countries pension funds, such as the Norwegian government pension fund.

BlackRock was one of the foreign investors which bought Evergrande’s dollar bonds, and Evergrande’s USD debt has reached about more than 10 million dollars, but it reported only 2 million dollars to CCP government.

That’s not a huge amount, but it could significantly impact smaller Western funds that focus on Asia.

The CCP government has not yet fully announced this, but the market has calmed down somewhat after the People’s Bank of China printed about $80 billion in money this week, with more likely to come on Saturday.

This has sent shockwaves through equity markets and has had an impact on Western markets, so for now the concerns will diminish as long as they keep printing bank notes.

And the Evergrande real estate incident will bring huge risk to the U.S. stock market and Western finance. In order to maintain the stability of the regime, the Chinese Communist Party (CCP) would continue to print of money, and let the local government to digest the impact of the Evergrande real estate incident as deterrence for the Western society.

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