China’s massive property market is set for a major shock as its second biggest property developer, the Evergrande Group will be unable to pay the interest on over $300 billion on debts that are due on September 20th.
The debt default dangers have raised fears of a contagion among these property developers across Asia, Australia, and the West generally, due to how astronomically inflated a lot of housing markets are and due to the reckless policies these companies have taken.
The value of Evergrande bonds have collapsed 75% this year, the stock price has fallen even more, and the trading of onshore bonds have full on been stopped.
Employees at the Evergrande Group have been protesting over not being paid the salaries that they are entitled to as they work for the troubled property giant. The property giant employs 200,000 directly and 3.8 million indirectly.
"還我血汗錢" #恆大 員工在公司大樓外的抗議活動中高呼。
— 新聞看點 (@MuYangLee_XWKD) September 8, 2021
The value of new housing sales in China has plunged 20% since the peak in March of 2021 and this is not expected to improve any time soon.
China’s real estate industry is not unique in the world, as it has been fueled by a lot of very cheap money since the global financial crisis of 2008-2009.
According to the Fitch ratings agency the smaller banks more exposed to the Evergrande group will face the most difficult hit, “Smaller banks with higher exposure to Evergrande or to other vulnerable developers could face significant increases in non-performing loans (NPLs), depending on how any credit event involving Evergrande develops,” the ratings agency said.
Other Chinese developers Guangzhou R&F Properties Co (2777.HK) and Xinyuan Real Estate Co (XIN.N), have been downgraded due to fears they won’t be able to pay their debts. The yields on their bonds have risen over 30% in a sign of less and less access to market funding.
The only question now in regards to the Evergrande group is what sort of default it will be but the indications are very bad already, with contagion already happening and vulnerable banks set to see a sharp rise in non performing loans. Furthermore President Xi has been targeting the most unsustainable sources of growth in the Chinese economy and is seemingly taking the country through an economic restructuring period so as to make the Chinese economy more resilient. The West is doing the total opposite as is South Korea and Japan.
With situations such as this in the global economy, you are playing Russian roulette with your life and the life of your loved ones if you are not prepared for the collapse that is inevitable. Don’t waste any more time, prepare now, every day you have to prepare is critical.
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