London Daily

Focus on the big picture.
Friday, Jun 20, 2025

Evergrande can't pay its debts. China is scrambling to contain the fallout

Evergrande can't pay its debts. China is scrambling to contain the fallout

Evergrande has defaulted on its debt. Now Beijing is intervening to prevent a disorderly collapse of the indebted real estate group that could wreak havoc on the world's second biggest economy.

Fitch Ratings on Thursday declared that the embattled property developer has entered "restricted default," reflecting the company's inability to pay overdue interest earlier this week on two dollar bonds. The payments were due a month ago, and grace periods lapsed Monday.

Evergrande's apparent failure to pay that interest has revived fears about the future of the company, which is reeling under more than $300 billion of total liabilities. Evergrande is massive — it has about 200,000 employees, raked in more than $110 billion in sales last year, and owns more than 1,300 developments in more than 280 cities, according to the company.

Analysts have long been concerned that a collapse could trigger wider risks for China's property market, hurting homeowners and the broader financial system. Real estate and related industries account for as much as 30% of GDP.

Chinese authorities have so far downplayed the prospect of spillover risks.

"China's leadership is attempting to play it cool, but the circumstances surrounding Evergrande's downward spiral raises serious questions about [Chinese President] Xi Jinping's stewardship over China's rapidly cooling economy," said Craig Singleton, an adjunct fellow in the China Program at the Foundation for Defense of Democracies, a research institute based in Washington, D.C.

There's already plenty of evidence that Beijing is taking a leading role in guiding Evergrande through a restructuring of its debt and sprawling business operations.

The local government in Guangdong province, where Evergrande is based, said late last week that it would send officials into the firm to oversee risk management, strengthen internal controls and maintain normal operations.

And earlier this week, Evergrande announced it would set up a risk management committee, including government representatives, to focus on "mitigating and eliminating" future risks. Among its members are top officials from major state-owned enterprises in Guangdong, as well as an executive from a major bad debt manager owned by the central government.

Chinese authorities have taken other steps as well. The central bank on Monday announced that it would pump $188 billion into the economy, apparently to counter the real estate slump.

"These latest interventions, by both the central government and officials in Guangdong, suggest Chinese officials now begrudgingly accept that Evergrande is, in fact, 'too big to fail,'" Singleton said.

Global investors may 'take a hair cut'


The massive restructuring is going to come with some pain, at least for global bond holders.

Beijing has made it clear that its priority is protecting the thousands of Chinese people who have bought unfinished apartments, along with construction workers, suppliers and small investors. It also wants to limit the risk of other real estate firms going under. Investor fears over Evergrande's default have pushed up financing costs for other developers, as yields on offshore Chinese corporate debt surge.

At the same time, the government has been trying for more than a year to rein in excessive borrowing by developers — and so won't want to dilute that message.

That means the government may be "happy to see the firm itself go under and investors take a haircut," said Louis Kuijs, head of Asia economics at Oxford Economics, in a research note on Friday.

Chinese regulators have blamed Evergrande's crisis on the company's leaders. Its problems were the result of "poor management and blind expansion," the central bank and the country's securities regulator said Monday in public statements, reiterating previous criticisms.

Yi's comments on Thursday, made during a video speech to a forum in Hong Kong, underscore the government's priorities. He noted that Evergrande's problems would be handled in "a market-oriented way."

That "reinforces the ongoing stance from authorities of not turning to any bailout," said Yeap Jun Rong, market strategist for IG Group.

Spillover to growth


It's a "delicate balancing act" to allow Evergrande to fail while minimizing any economic or financial impact, Kujis said, especially given the broader downturn in real estate that has already seen several other developers default, including Kaisa Group this week.

New home prices in China fell in October for the second consecutive month, according to figures from the National Bureau of Statistics. The fall in September was the first in six years on a month-on-month basis.

A major slowdown in the property sector, along with other factors, could drag China's GDP growth next year down to 4.3%, according to Ting Lu, Nomura's chief China economist. That's much lower than the firm's estimated growth for 2021 of 7.8%.

During an online conference Friday, Lu also warned that the government shouldn't suddenly reverse its curbs on real estate finance. Such a turnaround would hurt Beijing's long-term goals, he added, pointing to its desire to reduce the economy's reliance on property and divert resources away from property into other sectors, such as tech.

Kuijs from Oxford Economics expects Beijing to take targeted policy measures for homeowners, troubled developers, or banks that are exposed to debt risks. He suggested such moves could include making it easier for developers to raise funds on the capital market, adjusting land policies, and increasing the construction of rental units.

"We also expect broader easing of fiscal and monetary policy," he said. "And it is likely the government will take steps to contain ripple effects in the financial system, including possibly ring-fencing banks particularly exposed to developers in trouble."

Singleton warned, though, that the real estate crisis remains a looming threat for China.

"The possibility of contagion in other parts of China's vast economy remains very real," he said. "And, it is on this issue where China's central bank faces its biggest constraint — while it may be able to contain the financial implications from a housing default, it cannot offset the housing market's impact on China's real economy."

Newsletter

Related Articles

0:00
0:00
Close
16 Billion Login Credentials Leaked in Unprecedented Cybersecurity Breach
Senate hearing on who was 'really running' Biden White House kicks off
Iranian Military Officers Reportedly Seek Contact with Reza Pahlavi, Signal Intent to Defect
FBI and Senate Investigate Allegations of Chinese Plot to Influence the 2020 Election in Biden’s Favor Using Fake U.S. Driver’s Licenses
Vietnam Emerges as Luxury Yacht Destination for Ultra‑Rich
Plans to Sell Dutch Embassy in Bangkok Face Local Opposition
China's Iranian Oil Imports Face Disruption Amid Escalating Middle East Tensions
Trump's $5 Million 'Trump Card' Visa Program Draws Nearly 70,000 Applicants
DGCA Finds No Major Safety Concerns in Air India's Boeing 787 Fleet
Airlines Reroute Flights Amid Expanding Middle East Conflict Zones
Elon Musk's xAI Seeks $9.3 Billion in Funding Amid AI Expansion
Trump Demands Iran's Unconditional Surrender Amid Escalating Conflict
Israeli Airstrike Targets Iranian State TV in Central Tehran
President Trump is leaving the G7 summit early and has ordered the National Security Council to the Situation Room
Taiwan Imposes Export Ban on Chips to Huawei and SMIC
Israel has just announced plans to strike Tehran again, and in response, Trump has urged people to evacuate
Netanyahu Signals Potential Regime Change in Iran
Juncker Criticizes EU Inaction on Trump Tariffs
EU Proposes Ban on New Russian Gas Contracts
Analysts Warn Iran May Resort to Unconventional Warfare
Iranian Regime Faces Existential Threat Amid Conflict
Energy Infrastructure Becomes War Zone in Middle East
UK Home Secretary Apologizes Over Child Grooming Failures
Trump Organization Launches 5G Mobile Network and Golden Handset
Towcester Hosts 2025 English Greyhound Derby Amid Industry Scrutiny
Gary Oldman and David Beckham Knighted in King's Birthday Honours
Over 30,000 Lightning Strikes Recorded Across UK During Overnight Storms
Princess of Wales Returns to Public Duties at Trooping the Colour
Red Arrows Use Sustainable Fuel in Historic Trooping the Colour Flypast
Former Welsh First Minister Addresses Unionist Concerns Over Irish Language
Iran Signals Openness to Nuclear Negotiations Amid Ongoing Regional Tensions
France Bars Israeli Arms Companies from Paris Defense Expo
King Charles Leads Tribute to Air India Crash Victims at Trooping the Colour
Jack Pitchford Embarks on 200-Mile Walk to Support Stem Cell Charity
Surrey Hikers Take on Challenge of Climbing 11 Peaks in a Single Day
UK Deploys RAF Jets to Middle East Amid Israel-Iran Tensions
Two Skydivers Die in 'Tragic Accident' at Devon Airfield
Sainsbury's and Morrisons Accused of Displaying Prohibited Tobacco Ads
UK Launches National Inquiry into Grooming Gangs
Families Seek Closure After Air India Crash
Gold Emerges as Global Safe Haven Amid Uncertainty
Trump Reports $57 Million Earnings from Crypto Venture
Trump's Military Parade Sparks Concerns Over Authoritarianism
Nationwide 'No Kings' Protests Challenge Trump's Leadership
UK Deploys Jets to Middle East Amid Rising Tensions
Trump's Anti-War Stance Tested Amid Israel-Iran Conflict
Germany Holds First Veterans Celebration Since WWII
U.S. Health Secretary Dismisses CDC Vaccine Advisory Committee
Minnesota Lawmaker Melissa Hortman and Husband Killed in Targeted Attack; Senator John Hoffman and Wife Injured
Exiled Iranian Prince Reza Pahlavi Urges Overthrow of Khamenei Regime
×