Evergrande's US$ 300 billion debt manageable (INFOGRAPHICS)
The large Chinese real estate group risks bankruptcy. For China’s central bank, there is no "systemic" danger. On Wall Street, it is not seen as another Lehman Brothers. Chinese businesses are shifting investments from real estate to other sectors. Evergrande workers protest for non-payment of wages.
Beijing (AsiaNews) – According to the Governor of the People’s Bank of China, China’s central bank, Yi Gang, the authorities can contain the economic and financial fallout of an eventual bankruptcy by China Evergrande Group.
The Guangdong-based real estate group, one of the largest in the world, has accumulated more than US$ 300 billion in debt.
In China, there is widespread fear that the Evergrande crisis could infect other real estate firms, a fear compounded by the guidelines laid down by Chinese President Xi Jinping, who has put a squeeze on lending to "cool" the real estate market.
Evergrande employ 200,000 people with an additional 3.8 million jobs connected to its operations across China managing 1,300 projects in more than 280 Chinese cities.
Analysts note that some of its misadventures stem from bad investments in non-core businesses, such as electric cars, football (China's most famous team), theme parks, drinks and food.
For Governor Yi, the fact that Evergrande's liabilities are spread across hundreds of financial entities limits the risk of contagion.
The real estate sector and related activities represent 30 per cent of China’s GDP, about US$ trillion dollars.
Evergrande is not the only Chinese real estate firm in trouble. Fantasia Holdings Group recently filed for bankruptcy, while Sinic Holdings Group said it is close to default.
Like with other Chinese businesses, China’s real estate crisis is still manageable for Wall Street analysts, and it is not comparable to the collapse of Lehman Brothers, a US-based global financial services firm, in 2008.
Despite such reassurances, AsiaNews has learnt from several Chinese business people that there is concern in the country about a possible "systemic" risk caused by the collapse of Evergrande.
To protect themselves against any negative effects, many companies in the country are reducing their investments in the real estate sector, moving into other areas.
However, this will result in the sector’s workforce paying a hefty price. With fewer loans and fewer investments, the sector is bound to contract.
As reported by the Hong Kong-based China Labour Bulletin (CLB), Evergrande employees have protested three times already this year, demanding payment of arrears, a situation that is likely to be repeated in the future.
According to CLB, official unions (linked to the Chinese Communist Party) should be more proactive in responding to workers’ demands in troubled companies.
However, the health of China’s economy is not currently at its best. After the recovery following the first phases of the COVID-19 pandemic, annual GDP growth in the third quarter of 2021 dropped to 4.9 per cent after recording a +7.8 per cent in the second quarter (April-June).
In fact, Chinese companies see even greater clouds in the coming months, with power outages an even greater threat than Evergrande’s possible collapse.