Evergrande Crisis

Evergrande Crisis and its Global Impact

• Evergrande's financial troubles have caused a crisis in the Chinese property market, leading to bankruptcies among property developers nationwide.
• Evergrande, a major player in China's property market, missed payments on wealth management products, causing unrest among investors.
• The company's default on its offshore debts has led to the collapse of the entire bond market for the Chinese property sector.
• Evergrande's massive borrowing of $300 billion accounts for 2% of China's GDP, making its potential failure unprecedented and catastrophic.
• The crisis has spooked global investors, leading to a domino effect of defaults and financial strife among international companies with ties to Evergrande.
• The situation has drawn comparisons to the Lehman Brothers collapse and raised concerns about the potential for a global financial crisis.
• Despite the crisis, it is unlikely to lead to a financial market meltdown in China similar to the aftermath of the Lehman crisis, as the Chinese government is expected to take measures to contain the fallout.
• The involvement of major international investors such as BlackRock, Goldman Sachs, and HSBC in Evergrande's bonds has added to the complexity and global impact of the crisis.
• The collapse of Evergrande raises questions about the role of auditors, as an investigation has been launched into the work of PwC, the company's auditors.
• The crisis has brought uncertainty and worry to global markets, with concerns about the potential ripple effects and the collapse spreading to China's financial industry.
• The crisis reflects the risks associated with high yield bonds and has raised doubts about future investor confidence in Chinese companies.
• The scale of Evergrande's potential failure and its implications for China's economy make it likely to be the biggest bankruptcy in China's history, with long-term and unimaginable consequences.

Rise and Fall of Evergrande: A Detailed Overview

• Chinese farmers moved from farms to cities in the 1990s for better wages and opportunities in big factories.
• China's urban population grew from around 415 million in 1998 to over 900 million by the end of last year.
• Before 1998, every Chinese urban citizen would get a flat for free from the government, and those living in government apartments were allowed to buy them at nominal prices.
• Construction workers, mostly working for property companies, account for more than 10% of China's total workforce.
• Evergrande, founded in 1997 by Hui Ka Yan, rapidly grew, with $150 billion on its balance sheets within 10 years.
• Evergrande's total revenue grew at an annualized rate of 44% from 2004 to 2020, making it one of the fastest-growing companies in China.
• Hui Ka Yan became a wealthy figure in Chinese real estate, particularly by making small shoebox apartments that were a big success.
• Hui Ka Yan was known for his charismatic personality and extraordinary salesmanship, and he cultivated political connections to gain access to more credit.
• Evergrande's chairman had a taste for luxury, living a lifestyle associated with newly minted Chinese billionaires and mingling with influential figures.
• Evergrande went from being a small developer to having over 1,000 projects in over 200 cities across mainland China, with over two trillion renminbi of assets on its balance sheet.
• Evergrande's business model involved buying land from local governments, building apartments, and selling them to customers before construction, which led to rapid expansion.
• Evergrande's allocation of funds to other areas led to stalled projects, causing anger among homebuyers and creating an arms race among developers to move as quickly as possible.