This is the stock market’s worst day since Oct. 2020. Economic analysts believe the tumble is due to concerns over China’s real estate market. The pressure came from just one company: Evergrande.
Evergrande is the second-largest property developer in China. It fueled the growth of the communist nation’s property market over the past decade. But in this process, it accrued more than $300 billion in liabilities.
Many are speculating that the company will not be able to meet its debts. It is due to pay interest on its debt this Thursday, and it has an upcoming debt crunch of more than $7 billion due in 2022.
Evergrande’s shares dropped by more than 15 percent on Monday due to these concerns. Some market watchers are calling Evergrande China’s “Lehman Brothers moment,” a reference to the collapse of the investment bank that triggered the 2008 financial crisis.
Other stock markets all over the world tanked due to the reverberating concerns regarding Evergrande. In Hong Kong, the Hang Seng index dropped by 3.3 percent. In Europe, the United Kingdom’s FTSE 100 dropped by 0.86 percent, Germany’s DAX fell 2.31 percent and France’s CAC 40 tanked by 1.74 percent.
Market analysts are also concerned about the upcoming fight regarding the debt ceiling in Congress, which Democrats will need to increase to keep the government funded before Sept. 30.
Evergrande’s collapse could leave more than a million homebuyers without homes
Evergrande is in the process of building homes for some 1.5 million buyers. But many of the company’s real estate developments have been left untouched for months.
One of those developments is Sunny Peninsula, a seaside community in the southern Chinese city of Guangzhou, near Hong Kong. The community was supposed to house 5,000 families in dozens of apartment towers spread across the development. But the project has not been touched for months, with many apartments half-finished.
Evergrande is close to collapsing under the weight of its more than $300 billion in liabilities. It is uncertain if it will be able to meet its debt obligations, and there is also a lot of uncertainty over whether the Chinese government will help bail out Evergrande.
If the worst occurs, some 1.5 million buyers will be left waiting forever for the homes they were promised.
Given Evergrande’s outsized influence in the housing market, there are fears that the corporation’s collapse would trigger a broad decline in property prices. This can be very bad news for the Chinese economy, where 27 percent of all loans are for purchasing real estate.
Evergrande’s bungling of its finances has led to protests in China. Earlier this month, more than 100 people who purchased homes from Evergrande demanded that the company resume construction on their apartments in Guangzhou.
Multiple videos have also circulated on Chinese social media depicting similar protests against Evegrande in other cities. But due to the secretive nature of the Chinese internet, these other protests are unconfirmed.
In Evergrande’s headquarters in Shenzhen, right across the border from Hong Kong, furious retail investors who helped fund the real estate company’s expansion protested the delayed repayments on the wealth management products the company sold.
There are also concerns that the Chinese government will not bail out Evergrande because it believes it can engineer a “soft landing” for the country’s real estate market.
Real estate, including construction and property services, accounts for at least 15 percent of the country’s gross domestic product. More than 70 percent of all wealth in China’s urban areas is stored in housing. Countries like Zambia, Brazil and Australia depend on China for construction materials like steel and copper.
The outsized influence of the real estate market is a cause for concern by the Chinese government. It wants to steer the country’s economic resources away from housing and towards areas that it views as more important for national security, such as high-tech manufacturing.
What this means for Evergrande’s 1.5 million waiting homebuyers is unclear. One homebuyer who spoke with Bloomberg said: “Our one and only demand is that Evergrande can deliver the project.”
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