China's real estate market in crisis: Evergrande files for bankruptcy in the USA

2023-08-18 08:35:36

Evergrande files for bankruptcy in the US

The real estate group has declared itself insolvent in the USA. The company has become a symbol of the serious crisis in the Chinese real estate sector.

Posted today at 10:35amUpdated 7 minutes ago

The bankruptcy of the real estate developer Evergrande had already been feared in 2021.

Photo: Alex Plavevski (Keystone)

The massively indebted Chinese real estate developer Evergrande has declared itself insolvent in the USA. Evergrande filed for Chapter 15 bankruptcy protection in New York, court documents show. The article regulates insolvency cases affecting more than one country.

Evergrande has been in trouble for years, and the bankruptcy of the group was feared as early as 2021. Last month, after repeated delays, the company published figures: According to this, Evergrande made a total loss of around 100 billion dollars in 2021 and 2022. The debt amounted to more than $300 billion at the end of 2022. A court in Hong Kong is due to decide in October whether the group should be broken up.

Evergrande presented a restructuring plan in China in March. Part of this was the offer to the creditors to give them shares in the subsidiaries, such as the electric car subsidiary Evergrande NEV.

Crisis has lasted longer

The Chinese real estate sector has been in a severe crisis for some time, for which Evergrande has become a symbol due to its sheer size. Not only profit-hungry real estate developers, who have built disproportionately and often not in line with actual needs, are responsible for the current situation.

Beijing is also doing its part. Because before the industry got into trouble, it was confronted with tough new rules for reducing debt. Dozens of other real estate developers have since been torn into the abyss. The overly strict rules were often seen as the main cause of the crisis. In the meantime, Beijing has relaxed the regulations again and signaled help for the industry.

But a lot of trust is lost, and there is a lot of uncertainty. Just last week, Country Garden fell in the stock market after missing two coupon payments on US dollar bonds. The second largest developer in the country was previously considered to be comparatively stable. Initially, it is only interest payments of 22.5 million US dollars. Nevertheless, memories of Evergrande were immediately awakened, where the problems began in a similar way.

Problems spread to other areas

The crisis is also having an impact on other areas of the economy, as the real estate sector in China has always been an important pillar of growth. The Chinese economy is currently ailing anyway. The recovery after the corona pandemic is weaker than the government had hoped.

The crisis in the real estate sector also threatens to spread to the financial sector. With Zhongrong International Trust, one of China’s notorious “shadow banks” now seems to be getting into serious trouble. These are financial companies that do not have a banking license but invest money on behalf of investors – often with the promise of high interest payments.

Zhongrong is said to have run into liquidity problems after investing large sums in the troubled real estate sector. Angry investors have already protested in front of the headquarters in Beijing.

Concerns about China’s real estate market are also unsettling the international financial markets and weighed on the courses in the leading German index, the Dax. “What was observed in Germany last week could now expand into a real crisis in China and also affect the global financial markets,” wrote Jürgen Molnar, capital market strategist at the trading house Robomarkets, recently.