China’s real estate market is not calming down: The highly indebted real estate developer Evergrande has applied for bankruptcy protection in the USA.
According to court documents, the company filed for Chapter 15 bankruptcy protection in Manhattan on Thursday to protect itself from claims in the United States while negotiations continue elsewhere.
Debts of over 300 billion
The Chinese group is in a deep crisis and is considered the most indebted real estate company in the world. Evergrande had accumulated debts of over 300 billion dollars (around 276 billion euros). Interest payments could no longer be made on time. In January 2022, the company announced a restructuring plan. This was presented more than a year later in March. As the British “Financial Times” reported, negotiations with creditors in Hong Kong are to take place this month.
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 great 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.
crisis spreads
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 and one are also unsettling the international financial markets and weighed on the prices in the leading German index 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.
