Massive Chinese lender on brink of collapse, reminiscent of U.S. '08 financial crisis

Evergrande Group is facing a debt deadline ranging in the billions of dollars and is threatening to default. The crisis has prompted economists to compare Evergrande to Lehman Brothers, which collapsed in 2008, triggering the last major financial crisis in the United States.

Massive Chinese lender on brink of collapse, reminiscent of U.S. '08 financial crisis
AP Photo/Andy Wong
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Evergrande Group, one of China’s leading lenders, is facing a debt deadline ranging in the billions of dollars and is threatening to default. The brewing crisis has prompted economists to compare Evergrande to Lehman Brothers, which collapsed in 2008, triggering the last major financial crisis in the United States.

According to Fox Business, the Evergrande Group lends everything from property to vehicles and holds some 2.3 trillion Chinese yuan in assets, which is equal to around $355 billion U.S. dollars. The company, which employs 200,000 workers, is expected to reach 3 trillion yuan in total assets by 2022, 1 trillion in annual sales, and 150 billion in annual profits and taxes.

The Associated Press reports that rating agencies say that the group is unlikely to be able to repay all of the 572 billion yuan ($89 billion) it owes to banks and bondholders. The publication notes that the central government in Beijing may be forced to step in to prevent the rest of the Chinese economy from being impacted by the potential default.

Fox News reported:

“I suspect the Chinese government is on top of this, and I don’t doubt they will deal with it severely, but I don’t think it will have the global effects the market is suggesting this morning,” said Carlyle Group co-founder David Rubenstein during an appearance Monday on Mornings With Maria.

One U.S. investor in China tells FOX Business “just about every bank in China has exposure to the company,” which explains the heightened contagion fears.

American companies reported to be affected by the potential default include asset management firm BlackRock, which has holdings in Evergrande. Goldman Sachs and JP Morgan hold “small, fractional holdings,” per Fox Business, which means they are unlikely to be impacted too badly.

“The recent online remarks about Evergrande’s bankruptcy and reorganization are completely untrue,” read a statement from Evergrande on Sept. 13. “The company has indeed encountered unprecedented difficulties, but the company resolutely fulfills its corporate responsibility, goes all out to resume work and production, guarantee the delivery of buildings, try all means to resume normal operations, and fully protect the legitimate rights and interests of customers.”

Reuters reported:

In any default scenario, Evergrande, teetering between a messy meltdown, a managed collapse or the less likely prospect of a bailout by Beijing, will need to restructure the bonds, but analysts expect a low recovery ratio for investors.

Evergrande's troubles also pressured the broader property sector, with Hong Kong-listed shares of small-sized Chinese developer Sinic Holdings down 87%, wiping $1.5 billion off its market value before trading was suspended.

Evergrande executives are working to salvage its business prospects, including by starting to repay investors in its wealth management products with real estate.

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  • By Ezra Levant

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