Or it could walk away and let Evergrande fail completely, something it is “unwilling to do because that could result in a collapse in the economy,” Mr. But other developers would keep doing the same thing, bingeing on debt and fueling an ever bigger property bubble, something that Beijing had said it is unwilling to tolerate. Regulators could step in and force state-run banks to give the company the money it needs to pay all of its suppliers, construction workers, home buyers and employees. “They are under a lot of pressure to announce something soon.”īeijing is facing two bad options when it comes to Evergrande. “The officials still have some tools at their disposal to calm down the panic,” said Zhiwu Chen, a professor of finance at the University of Hong Kong, who predicted that the authorities would break up the company and sell its parts piecemeal.
Many now predict Beijing will not intervene until other property developers begin to fail and pose a collective risk to the broader financial system. While market observers once took as a given that Beijing would step in at the first sign of distress, rating agencies, banks and investors have all factored in a possible Evergrande default. It has paid off some suppliers with unfinished buildings, and contractors who have yet to be paid have protested. It has nearly 800 development projects still in progress in more than 200 cities. On Tuesday, Evergrande’s shares and bonds fell again after a dire forecast about its fate from S&P Global Ratings: “We believe Beijing would only be compelled to step in if there is a far-reaching contagion causing multiple major developers to fail and posing systemic risks to the economy.” On Thursday, Evergrande has an $83.5 million interest payment it is likely to miss, which would cause more market turmoil.Ī disorderly collapse for a company of Evergrande’s size could have ripple effects in China and beyond, including scaring off investors that have bet tens of billions of dollars on both the company and the property sector’s success.Įvergrande has warned it is under tremendous pressure and has hired restructuring experts to help determine its future. The panic set off a global chain reaction on Monday, pushing stock markets down as shares of Chinese home builders and large multinational companies tumbled. What’s at stake is more than the fate of a single company: Evergrande’s troubles have raised fears that China’s residential and commercial property market, which drives up to a third of the world’s second-largest economy, could crumble. But now it is buckling under the weight of more than $300 billion in debt.
Workers are panicking that loans they made to their employer cannot be repaid.Įvergrande Group was once China’s most prolific developer, its cranes dotting China’s skylines. Suppliers of cement, paint and rebar are owed more than $100 billion in payments. Angry home buyers are waiting on as many as 1.6 million apartments to be completed.
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