By: Aahoo Pourang
Evergrande Group is one of China’s largest lenders ranging from property to auto. Their assets are equivalent to about $355 billion US dollars, so the group is easily one of the world’s top companies and China’s second-largest property developer. To better understand just how big Evergrande Group is: it employs over 200,000 workers, it has a good 1,300 projects throughout 280 Chinese cities, and is crossovers to multiple industries including electric vehicles, sports, consumer goods, and wealth-management.
The group was founded in 1996 and has funded its rapid growth through borrowing. Lots of borrowing. So much that Evergrande Group’s debt has accumulated to $400 billion in liabilities and a large network of loans with deadlines. One of those deadlines is Monday, September 20, 2021, and two bonds worth over $100 million on Thursday, September 23, 2021.
The problem arises when Evergrande Group’s financial problem is becoming everyone else’s problem.
Investors are worried that if or when Evergrande fails, China will face a wave of bankruptcies, while upholding higher mortgage rates and stricter rules for borrowers. The group’s lenders are some of China’s largest banks, which will face major pressure, and companies will have a difficult time borrowing money. One US Investor has been quoted saying to FOX Business that “just about every bank in China has exposure to the company”.
Because everything is ultimately connected in the world of financial markets, the massive amount of money Chinese companies have borrowed has always been a threat to market stability, and investors now fear that Evergrande’s failings will cause an even greater wave of instability. According to CNN Business, The White House stressed that Evergrande’s business was centered in China and that they were monitoring the markets.
Simply put, if China, the world’s second-largest economy, is about to enter a financial crisis, it will no doubt seep into international markets.
Sources Cited: Barrons, CNN, FOXBusiness