• Global
  • Sep 20, 2021
  • 1 min read

Financial crisis, Made in China🙄

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What happened — the financial world is losing its mind as a Chinese real estate developer, Evergrande Group, is going bust, unable to pay nearly $300 billion in money owed, making it the 2008-financial crisis in the making.

Evergrande owns about 1,300 real estate projects around China, managing thousands of more properties, all spread across 300+ cities. High on business success, the company dabbled from electric vehicles to media to healthcare and even theme parks.

So a quick timeline of events leading up to the bust:

  • Last 10 years, Evergrande swells into the 2nd largest Chinese real estate company (developer + property manager) on the back of the property boom in China
  • Evergrande rapidly levers up — taking massive loans to fuel its growth
  • In ~2017, banks and regulators begin to worry a bit…
  • China's property market cools off in the last 2 years, while Evergrande is sitting on a massive unfinished inventory of high rises
  • Evergrande starts offering 20-30% discounts to clear homes, pay bills
  • Meanwhile, banks stop funding projects. And financiers stop giving loans to consumers for Evergrande’s apartments
  • Evergrande starts to sell off its subsidiaries, but the $$ is not enough to plug cash flow leaks to pay suppliers, banks etc.
  • Markets dump stock, Evergrande bonds go to zero
  • August 2021, Rekkt

What now — citizen protests have begun. Evergrande employs about 200K people, but indirectly could cause 2M+ job losses. Meanwhile, the government is still mum on if it wants to help, or let the company fail and be made an example of.

Not Ending Well True Crime GIF by Oxygen
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Big picture — Evergrande’s situation is pretty much like the wipeout of the Lehman Brothers empire, which had catalyzed the ‘08 financial crisis. Tremors could quickly reverberate much farther from China.