China Evergrande Group is deeply in the red – to the tune of $300bn. And concerns are mounting that if it defaults on its debt, it could spell disaster for China’s property market and send shock waves through the world’s second-biggest economy.
A reckoning appeared even closer on Wednesday after Bloomberg News, citing people familiar with the matter, reported that the real estate developer may not be able to make the interest payments on some of its $300bn in liabilities next week and could also miss a principal payment on at least one of its loans.
It’s the latest development in the real estate behemoth’s saga, which is being closely watched in China and around the globe.
Evergrande is currently the world’s most indebted real estate developer. The central question is whether Chinese authorities plan to allow Evergrande’s creditors to suffer major losses or whether the country’s communist government, which prizes stability and control, will intervene in some way to avoid a messy default and the damaging ripple effects it could trigger.
Here’s what you need to know about Evergrande and the impact its current financial situation could have on China and the global economy.
Start at the beginning. How long has Evergrande been in business?
Evergrande was founded in 1996 in the Chinese province of Guangzhou by Hui Ka Yan.
Hui graduated from college in 1982 and worked in a steel factory before founding Evergrande, according to Forbes, which lists his current net worth at $11.4bn, making him the 53rd richest person on its Billionaires 2021 list and the 10th wealthiest on its China Rich List 2020.
The 62-year-old is currently Evergrande’s chairman.
How many projects does the firm currently have?
Evergrande currently has 1,300 real estate projects in 280 cities in China, according to its website.
It has also expanded to other industries, including electric vehicle production, property management, film and TV, theme park construction, life insurance, a hospital, a football club, and the production of food, mineral water and baby formula.
Wow. And how big are those other endeavours?
The company’s property management arm, Evergrande Property Services, has approximately 2,800 projects in 310 cities in China encompassing a total contract area of more than 680 million square metres, according to the firm’s website.
And its Evergrande New Energy Vehicle has set the ambitious goal of developing 14 electric vehicle models ranging from sedans to sport utility vehicles and producing and selling five million of them per year by 2025 and five million by 2035.
The firm’s media company, Hengten Networks, includes a streaming platform known as Pumpkin Film that said it had 20.1 million paid subscribers by the end of May, and a film and TV production company called Ruyi Film.
Evergrande also boasts a sports team, Guangzhou Evergrande FC, which is one of the best-known football clubs in China. But it isn’t a money-maker: the firm loses an estimated $155m to $310m on its football-related ventures annually, Bloomberg Intelligence analysts Dan Wang and Daniel Fan wrote in a recent report.
Got it. So how much trouble is Evergrande in?
Some $300bn of it, according to liabilities listed by the company, and Evergrande’s inability to make timely payments on the interest and principal amounts of its loans has investors inside and outside of China worried.
It’s also sparked protests among homebuyers, investors and even members of the firm’s staff who have shown up outside of Evergrande’s offices to demand company officials meet with them.
Security personnel in Shenzhen hauled off protesters who had gathered outside the company’s headquarters, some of whom chanted, “Evergrande return our money,” the Reuters news agency reported. In addition to investors, some of the protesters said they were vendors the company had failed to pay.
