Australia Why Australia is worried about the collapse of China's Evergrande
Evergrande: China's fragile housing giant
Chinese housing giant Evergrande is one of the country's largest private conglomerates and world's most indebted property developer, teetering on the brink of bankruptcy after years of rapid growth and a buying spree. With a presence in more than 280 cities, Evergrande is one of the largest private companies in China and one of its leading real estate developers. The firm made its wealth over decades of rapid property development and wealth accumulation as China's reforms opened up the economy.
One of Australia's most powerful bankers is convinced the Chinese Government will let Evergrande fail to teach other property developers a lesson about unsustainable debt.
Evergrande owes more than $400 billion to investors and has this week struggled to meet $110 million worth of annual interest payments.
The collapse of's second biggest property developer would have huge implications for Australia as China is a major buyer of Australian iron ore used to make steel.
Reserve Bank of Australia deputy governor Guy Debelle said the collapse of Evergrande, founded in 1996, was a real possibility, with the Chinese Communist Party government less willing to save it.
China: Flutable owners request accounts at Evergrand
© Christmas Celis Gathering of Spoliated Owners in front of the seat of the Evergrande Real Estate Group in Shenzhen, September 14, 2021 "They owe me more than 10 million!": Mrs Xia as Dozens of spoliated owners manifest in front of the headquarters of the Chinese real estate Giant Evergrande, who admitted Tuesday not to be able to cope with his obligations. Evergrande, crushed by a liability of nearly 260 billion euros, is the largest real estate developer in China.
'My assessment is how this evolves is very much in the hands of the Chinese authorities,' he told the House of Representatives Economics Committee.
'It's something we're spending a fair bit of time looking at.
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'Their tolerance of default is higher than it would have been even a few years ago.
'They are willing to see some sort of default of limited consequence in a way that they probably weren't going back a few years.'
Dr Debelle said China wanted to teach the property sector a lesson about the risks of overborrowing.
'Your back's not always covered,' he said.
'You can have a controlled default which can provide a salutary lesson to everyone that maybe you should price risk a little bit more appropriately.
Is the Evergrande meltdown China’s Lehman Brothers moment?
Investors are worried an Evergrande debt default could send shock waves through the Chinese and global economies.Now, the images of disgruntled China Evergrande Group investors, employees and vendors camped outside the firm’s headquarters in Shenzhen in recent weeks have the potential to become a shorthand of their own.
'That's where they've been shifting rather than "we don't want anyone to lose any money in any circumstances". There's been a shift in that mindset.'
Credit ratings agency S&P Global's prediction of China letting it fail had sparked a major selloff on Tuesday night, as investors worried about the glut of unfinished apartments.
Evergrande subsidiary Hengda Real Estate Group on Wednesday agreed to an interest-payment deal with bondholders, but this hasn't completely prevented a collapse.
The news saw Bitcoin rally by 4.8 per cent to climb back above $60,000 for the first time since Monday when Evergrande missed its bond payment deadline.
Iron ore prices are back above $US100 after sinking below that benchmark on Sunday for the first time since July 2020 but they are still half the $US200 level of July 2021.
Evergrande shares surged by 32 per cent during Asian trade on Thursday after chairman Hui Ka Yan promised wealth investors the property developer would resume construction activity, as a Thursday deadline loomed for bond coupon payment obligations.
Why the collapse of Evergrande in China is a time bomb for Australia
Evergrande has defaulted on its debts and credit ratings agency S&P is expecting China to let it fail. This has major implications for Australia which relies on exporting iron ore.Evergrande is drowning in debt and failed to meet $110 million in annual interest payment obligations due this week.
Its share price has plunged by 85 per cent in 2021 but Thursday marked the biggest one-day increase since it listed in 2009, a Reuters analysis showed.
The Chinese Communist Party government is reluctant at this stage to rescue Evergrande as it cracks down on overborrowing under a new 'three red lines' policy.
President Xi Jinping is also embarking on a 'common prosperity' drive forcing billionaires to give back me to the state.
Liberal MP Tim Wilson, who chairs the Economics Committee, said the potential Evergrande collapse raised issues about China's banking system and described its debt problems as 'seismic'.
'That could raise bigger questions about the credibility of Chinese banks,' he said.
In August 2020, China introduced a three red lines policy to address huge debt levels in the property sector, which came into force this year.
This gave the Chinese Government the power to place limits on their debt growth if developers had a high liability to asset ratio.
Dr Debelle likened Evergrande's existence to China's ability to manage a crisis involving state-owned enterprises.
Lured by promises of high returns, thousands gave Evergrande cash
More than 80,000 people bought wealth management products from Evergrande and fear they won’t see their money again.Now, many fear they may never get their investments back after the cash-strapped property developer recently stopped repaying some investors and set off global alarm bells over its massive debt.
'If you look at how countries have dealt with these financial issues in the past, you often see a misstep which can have severe consequences,' he said.
'Whether that's going to happen this time around, I don't know but it's a possibility.
'The point I would make is if you have a lot of balls in the air sometimes you might drop one.
'People in China are very much looking at this full time.'
During times of financial market volatility, gold has traditionally been regarded as safe-haven investment, like government bonds and benchmark currencies like the US dollar and the Japanese yen.
But Gemini Trust Asia-Pacific managing director Jeremy Ng, who is based in Singapore, said Australians concerned about inflation and a slow economic recovery were increasingly turning to cryptocurrencies.
'Gold has historically been considered a safe-haven asset,' he said.
'However, Bitcoin and several other cryptocurrencies have experienced meteoric growth and offer unique, innovative features that make them stand out.'
Evergrande misses second payment deadline: reports .
The indebted Chinese property giant is said to have missed more payments to overseas investors.Evergrande was due to pay foreign bond holders $47.5m (£35m) by Wednesday.