Real estate company on the brink of collapse: Central bank: Evergrande risk “manageable”

Real estate company on the brink of collapse
Central bank: Evergrande risk “manageable”

The Chinese real estate company Evergrande is crushed by billions in debt. Loans can no longer be serviced, construction sites lie idle. In view of the situation, China’s central bank is trying to calm down: there is no danger that other areas will be dragged into the abyss.

After weeks of excitement about the completely indebted real estate developer Evergrande, China’s central bank has commented on this for the first time. The Chinese media quoted central bank representative Zou Lan as saying that the risk of contagion for the Chinese economy is “manageable”. Evergrande was “very badly managed” and expanded “blindly”, he criticized.

Evergrande has accumulated a mountain of debt of around 260 billion euros through an aggressive expansion financed on credit over the past few years. The company is currently neither in a position to fully service its due dates, nor to hand over finished apartments to the buyers. Zou said the authorities would “urge Evergrande to step up its efforts to sell parts of the business and speed up the handover of construction sites.”

It was only announced today that the planned multi-billion dollar sale of Evergrande’s Hong Kong headquarters has failed for the time being. The state owned real estate developer Yuexiu Property withdrew from the talks given the difficult financial position of the company, as two people familiar with the matter reported. A purchase of the building complex for the equivalent of 1.7 billion US dollars had been negotiated. Evergrande and Yuexiu left requests for comment unanswered.

Evergrande holds many company shares

The Chinese government had not yet commented on the real estate developer’s difficulties. Experts speculated that Beijing could order a breakup. Evergrande has stakes in the tourism, insurance and healthcare industries and founded the electric car manufacturer Evergrande Auto in 2019 to compete with Tesla.

The real estate industry in China has long been the engine of economic growth. Millions of apartments have been built in the past few years. For Chinese people, buying a home is a very important step up the social ladder. Numerous companies went into debt in order to participate in the business. The government began to slow down development in the summer of 2020. She gave the real estate companies the so-called “three red lines”.

These put limits on companies’ borrowing and forced them to reduce their liabilities. With that began the trouble for Evergrande. In the past few days, two other real estate developers had admitted serious problems: Fantasia did not repay debts due, Sinic warned of the default. Central bank representative Zou assured, however, that the Chinese real estate sector is “generally healthy”.

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