After Chinese developer giant Evergrande Group fell into a debt crisis in 2021, it quietly triggered a ripple effect across the country.
According to the Wall Street Journal, Evergrande’s financial woes have spread to the mainland real estate market and many related sectors.
Companies in construction, manufacturing building materials, interior decorators, and many others Evergrande owes money to have absorbed large losses. Some of them were forced to lay off employees and delay paying their own bills.
The chain reaction has occurred though the Chinese regime has tried to prevent Evergrande from bankruptcy.
China’s real estate market has worsened this year and now it is in a full-blown downturn, dragging on the economy.
Rosealea Yao is a senior analyst at Gavekal Dragonomics in Beijing said, “It’s no longer a matter of whether Chinese authorities can prevent a hard landing. The hard landing already happened.”
Yao added that the most painful period has only started this year, and that the full impact of the property downturn hasn’t hit yet.
And Evergrande’s financial troubles have spilled over to customers.
Many buyers used their savings to purchase unfinished homes built by Evergrande and now they have been in limbo for more than a year. They are not sure when Evergrande will be able to deliver the houses.
After Evergrande defaulted on its dollar debt at the end of 2021, investors largely stopped financing Chinese real estate companies in the dollar junk bond market.
As a number of developers are unable to refinance debt, bond investors’ losses continue to increase.
Affected by an ailing real estate sector, many construction companies are struggling.
Jiangsu Nantong Sanjian Construction Group, one of the largest construction companies in Jiangsu, once regarded Evergrande as its top customer.
Nantong Sanjian suffered a large loss last year. The company has written off half of its receivables from Evergrande projects. It has declred a total write-off equivalent to more than $630 million to date.
Nantong has also been sued by raw-material suppliers and contractors for overdue debts, and banks froze its accounts as a result. The company’s chairman, Yuhui Huang, has been listed as a “dishonest person” in China’s credit-scoring system.
There are other Evergrande victims.
Shenzhen Grandland Group, a construction contractor, is reeling from Evergrande’s liquidity problems, its biggest client.
Shenzhen Grandland had to lay off some of its workers, and had trouble paying its own suppliers. It was also taken to court this year by a provider of stainless steel.
Interior decorator Suzhou Gold Mantis Construction Decoration Company had to write off the equivalent of $808 million of impairment losses from Evergrande projects.
Paint supplier 3TreesGroup, that used to count Evergrande as its biggest client, has written off about two-thirds of all its accounts and notes receivables from Evergrande.
Furniture manufacturer Suofeiya Home Collection Company also wrote down 80% of all accounts receivables due by Evergrande.
Logan Wright is director of China markets research at Rhodium Group. He said, “They were just an outsized example of the larger financial imbalances building within the property sector” in China.