Evergrande’s debt in China rekindles the specter of a new Lehman Brothers | The HuffPost – The HuffPost

REUTERS / Carlos Garcia Rawlins

ECONOMY – Bad memories and signs of concern for the global economy. The real estate developer Evergrande sounded the alarm on September 14, indicating that he would not be able to honor his obligations to his creditors and that he was finding it increasingly difficult to meet his debt assessed at more of 260 billion euros, on which it currently has to repay interest payments.

The group, which denies being on the verge of bankruptcy, nevertheless admitted to face an “immense pressure” on the financial plan, pushing the economic circles to be alarmed of a possible liquidation and its domino effect on the Chinese and world economy. The group has become in two decades one of the faces of the real estate frenzy in China, when millions of households have been able to acquire property. It would keep more than 1.4 million homes under construction that it can no longer afford to complete and hand over to its owners.

Nearly 4 million jobs affected in China

Its fall would therefore have considerable consequences for “social stability”, the policy mantra of the Chinese Communist Party. The firm employs 200,000 people and says it indirectly weighs on at least 3.8 million jobs in the country through its contracts with its subcontractors or suppliers, in a sector that represents no less than 13% of the country’s GDP.

Should we therefore be concerned about a systemic effect and a scenario at the Lehman Brothers, the American bank that marked the start of the international financial earthquake in 2008 after declaring bankruptcy on September 15, just 13 years ago? “Unlikely”, according to several economists, because Evergrande’s payment obligations reside mainly in China. “Of Evergrande’s $ 300 billion in debt, there is probably $ 15 billion overseas. Or only 5% of the whole ”, estimated this Tuesday, September 21 on franceinfo Jean-François Di Meglio, president of the Asia Center research institute.

“But the risk is there if the Chinese state does nothing and it must act quickly because the longer it lasts, the more you will have a negative economic and financial impact”, explains to the HuffPost Christophe Barraud, chief economist and strategist at Market Securities, speaking about a stock market sector under pressure. “In China, the problems are often solved before they are known to everyone, but there it is not resolved as quickly as expected, yet they have no interest in letting it all go into the background”, continues- he, specifying that concerns about the financial health of Evergrande have been mentioned for several years.

“There is a bad signal that impacts several sectors: real estate, construction, but also the suppliers of raw materials, such as steel, up to the bank. The cocktail is explosive ”, he adds, while the health of the second largest economy in the world has been questioning since the end of July with the appearance of cases of the Delta variant in the country, the return of local containments and the shutdown of several factories or freight ports as part of the policy “zero Covid”From Xi Jinping.

“This is not the time to have an additional shock on the Chinese economy,” continues Christophe Barraud. But what can Beijing do? Bailing out Evergrande would send “a bad signal” to other heavily indebted groups, said Larry Ong of the specialist firm SinoInsider to AFP. Beijing is trying to eradicate in recent months over-indebtedness practices that weaken the financial system. Nationalization of the company remains an option, believes Deng Haozhi, a specialist in the Chinese real estate market, who adds that local authorities have already taken over certain real estate projects.

Protests across China

Beijing must also respond to the concerns of unpaid suppliers and cheated owners who protested last week outside the group’s headquarters in Shenzhen in the south of the country. Unusual scenes in a country where demonstrations are rarely tolerated.

REUTERS / David Kirton

In Suzhou, a city near Shanghai, the group was to install a large residential complex with schools, amusement park and a European-style shopping district. The unfinished “Evergrande Tourist and Cultural City” is now invaded by angry buyers who doubt they will ever get their money back.

Cornered, Evergrande now offers its creditors to reimburse them … in kind, in the form of land or parking spaces. So many offers rejected by those concerned. “What I want is money!” An investor told AFP. I’m not even going to look at this offer ”.

Asked about these economic concerns, the White House has procrastinated. “This is a Chinese company whose activities are primarily concentrated in China,” said the spokesperson. Jen psaki. Having said that, we are still monitoring global markets, including assessing any risk to the US economy and we are ready to respond appropriately if necessary ”. Beijing will, no doubt, before.

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