Chinese property market giant Evergrande was forced to suspend the sale of shares on the stock market this Monday, Jan. 3, as it grapples with an unpayable debt of around $300 billion.
Evergrande said in a filing to the Hong Kong Stock Exchange that it has suspended trading pending an “announcement containing inside information.” However, that was all the information reported, prompting a significant unknown in both the markets and the media, CNBC reported.
The company has about $300 billion in total liabilities. Specialists have maintained serious concerns for several months about whether a collapse could trigger a broader crisis in China’s property market, hurting homeowners and the financial system in general.
The U.S. Federal Reserve warned last year that China’s real estate sector problems could hurt the global economy.
Evergrande, the world’s most indebted real estate developer, is currently struggling to repay more than $300 billion in liabilities, including nearly $20 billion in international market bonds that rating firms deemed cross-defaulting last month after missing payments.
The firm defaulted on new coupon payments worth $255 million due last Tuesday. These have a 30-day grace period, and the Chinese Communist Party (CCP) is again expected to offer a lifeline to avoid a possible collapse.
The company has set up a risk management committee with many members from state-owned enterprises and said it would actively engage with its creditors after its shares plunged again last week following defaults.
The conflict beyond Evergrande
The crisis at China’s real estate giant Evergrande highlights a severe situation affecting the company and the entire country. According to recent reports, China has more than 30 million unsold new houses at the moment, giving rise to hundreds of “ghost cities,” completely indebted and with no horizon of how to get out of the abyss.
Local governments cannot afford the costs of the growth of their cities. Consequently, Dantesque scenarios arise as a result of the lack of maintenance, abandonment, lack of jobs, and the consequent lack of movement of people.
In November 2021, as reported by the South China Morning Post (SCMP), the National Development and Reform Commission, the CCP’s state planner, announced that these “characteristic cities” will be evaluated. They could even be shut down if they fail to meet a set of criteria, including appropriate land use, associated debt, and safety.
The initiative to develop characteristic cities outside megacities was launched five years ago as part of China’s urbanization drive.
In this context, real estate development companies such as Evergrande began building across the country and taking on debt in the local and international markets. At first, many buyers appeared, allowing the business to expand, but the steep decline in real estate sales rates drove potential buyers away.
Many of these towns were abandoned midway through construction due to lack of financing or faced bankruptcy due to lack of real estate buyers.
Real estate developers cannot pay the interest on debt, forcing the government to intervene to avoid a possible financial collapse.