Opinion

China Evergrande is not a Lehman Brothers moment, but its fate spells trouble for long-term growth

Name: Angry protest at headquarters of China Evergrande as property giant faces liquidity crunch
Uploaded: 2021-09-20T09:30:19.000Z
Duration: 2 min 28 s
Description: Angry protest at headquarters of China Evergrande as property giant faces liquidity crunch

Chinese authorities will not directly bail out the embattled property developer, but they will be keen to prevent a complete collapse

Beijing is likely to to use a cocktail of proven tricks: rolling over debt, haircuts on assets and emergency payments to the vulnerable

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Evergrande has encountered unprecedented difficulties, but it has denied it is heading towards bankruptcy. Photo: AFP

Zhou Xin

Zhou Xin is Tech Editor of the Post, following stints as Political Economy Editor and Deputy China Editor.

Published: 5:30pm, 20 Sep 2021Updated: 10:41pm, 20 Sep 2021

Chaotic scenes of hundreds of angry creditors outside the offices of China Evergrande demanding their money back have made for surreal viewing.

After all, the property developer looks quite solid on paper, with billions of dollars worth of assets that outweigh liabilities, and years of reported profits.

Until recently, chairman Xu Jiayin, or Hui Ka Yan in Cantonese, looked the picture of a well-connected Chinese businessman – rubbing shoulders with tycoons in Hong Kong and being hosted at the Communist Party’s 100th anniversary celebrations in July.

But every dollar of debt owed by China Evergrande – which includes about 2 trillion yuan (US$309.2 billion) on the books and an estimated 1 billion yuan of off-balance debt – is worryingly real.

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Angry protest at headquarters of China Evergrande as property giant faces liquidity crunch

The company has denied it is heading towards bankruptcy and is pushing forward with ongoing projects. Ideally, it can complete its new buildings and walk away from its current difficulties. But that scenario is far from certain – and stock and bond investors are acting accordingly.

The value of its assets will also be tested on the market. It would be unrealistic for China Evergrande to expect to be able to sell its land and property at paper value under current circumstances, something it seems to recognise itself.

For Chinese authorities, the debacle has become another “grey rhino” to deal with. For years, Beijing has warned that debt-fuelled property development is not sustainable and tried to contain the risks.