BLUF

The potential insolvency of Chinese property developer Evergrande has strategic and economic implications for Australia and the world.

Summary

 

Evergrande  is China's second-largest builder and one of the world's largest companies; however, it cannot cover the payments due on its debts:

  • Assets are equivalent to 2 per cent of China's GDP.

  • Its apartments have allowed mass migration from the country to the city. Investments include the Guangzhou soccer team and a faltering electric vehicle company.

  • Its business model relied on unchecked borrowing-now AUD 419 billion +.

  • The Evergrande collapse on steel mills, decorators, would-be homeowners, workers, suppliers, and banks, is likely to be devastating.

  • The potential worldwide implications are massive- similar to Lehman Brothers collapse?

  • China has one of the highest homeownership rates in the world.

  • Evergreen's potential collapse would destroy the life savings of millions.

  • Around 1.6 million homes are unfinished.

  • Current financial difficulties contributed to the S&P 500 falling 1.7 per cent.

  • Chinese Premier Xi Jinping is reigning in the private sector but, is Evergrande too big to fail? 

  • As Australia's largest trading partner, problems in the Chinese economy affect us.

Learn more about the collapse of Evergrande.

References