China intervenes to prevent Evergrande collapse

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China is intervening to prevent the disorderly collapse of indebted real estate group Evergrande, which could devastate the world’s second largest economy, CNN reported.

Fitch Ratings declared on Thursday that the troubled property developer had entered “restricted default,” citing the company’s inability to pay overdue interest on two dollar bonds earlier this week. The payments had been due for a month, and the grace periods had expired on Monday.

Evergrande’s apparent failure to pay that interest has reignited concerns about the company’s future, which is saddled with more than $300 billion in total liabilities, according to the report.

According to the report, Evergrande is massive, with approximately 200,000 employees, more than $110 billion in sales last year, and ownership of more than 1,300 developments in more than 280 cities.

Analysts have long been concerned that a collapse would exacerbate wider risks in China’s property market, harming homeowners as well as the wider financial system. According to the report, real estate and related industries account for up to 30% of China’s GDP.

So far, Chinese authorities have downplayed the possibility of spillover risks.

“China’s leadership is attempting to play it cool, but the circumstances surrounding Evergrande’s downward spiral raises serious questions about [Chinese President] Xi Jinping’s stewardship over China’s rapidly cooling economy,” said Craig Singleton, an adjunct fellow in the China Programme at the Foundation for Defense of Democracies, a research institute based in Washington D.C, the report said.

There’s already plenty of evidence that Beijing is taking the lead in guiding Evergrande through a debt restructuring and reorganisation of its vast business operations.

According to the report, the local government in Guangdong province, where Evergrande is based, announced late last week that it would send officials to the firm to oversee risk management, strengthen internal controls, and maintain normal operations.

About the author

Brendan Taylor

Brendan Taylor was a TV news producer for 5 and a half years. He is an experienced writer. Brendan covers Breaking News at Insider Paper.

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