Today, due to the ongoing financial problems in China, financial markets are in the red, including crypto markets.
The main problem is the possible bankruptcy of real estate giant Evergrande, caused by an excess of debt that the company cannot repay.
Evergrande in danger due to financial crisis
In China, the real estate bubble that had swollen in recent years seems to have burst, and uncollectable debts (NPL, non-performing loans) are also on the rise, so there is a serious risk that the Evergrande case could trigger a deep financial crisis in the country.
But according to some analysts, the situation is less serious than it might appear.
The fact is that the shadow of the Lehman Brothers bankruptcy, which occurred in September 13 years ago, still hovers over the global financial markets, triggering a real generalized collapse of the financial markets. But the current situation in China appears to be different.
According to Barron’s reports, China is planning a sort of “controlled detonation” for Evergrande, in order to avoid the collapse of the entire financial system.
Evergrande like Lehman Brothers
This would prevent Evergrande’s bankruptcy from emulating that of Lehman Brothers, and would limit the problem to the real estate sector.
Evergrande is 300 billion dollars in debt, and for a couple of weeks now the collapse seems imminent. The company has had to unilaterally reschedule its debt payments, in accordance with Chinese regulators, in order to effectively restructure its debt, and this move is seen as a good thing, even by investors themselves worried about their claims.
“Debt negotiations will buy time for an orderly disintegration of Evergrande, rather than an anarchic crack-up in a country with few big bankruptcy precedents”.
According to T. Rowe Price’s lead manager for emerging market corporate bonds, Samy Muaddi, this solution would not undermine the financial stability of the entire country.
If so, Evergrande’s failure will not be China’s Lehman Brothers, and financial markets will not be overwhelmed.
With Evergrande shares having lost more than 84% of their value on the Hong Kong stock exchange since the beginning of the year, the stock market as a whole has lost 12%, so at least for now it seems to be holding up in the face of this colossal bankruptcy.
The Chinese property market could be affected, and given that it is one of China’s most important domestic production sectors, the problems may not end with the controlled implosion of Evergrande.
For now, the contagion does not seem to have spread, as evidenced by the KraneShares Asia Pacific high-yielding KHYB real estate ETF, which has gained 1.4% over the past six weeks.
However, a “clampdown” on Chinese real estate is expected, with more government intervention that could prevent the entire system from collapsing.