December 4, 2022

Chinese funds count on Beijing to contain Evergrande contagion

China’s largest real estate developer, Evergrande Group, is in a heap of trouble. The company has been dogged by questions about its accounting practices and has seen its stock price plummet to an all-time low. In the midst of this crisis, Beijing is stepping up to bail out Evergrande with a bailout package worth $79 billion – but it may not be enough.

The Evergrande Real Estate Group is the largest developer in China, with over $45 billion in assets. It has always had close links to Beijing, but it faces an uncertain future after its stock price dropped by 40 percent earlier this year. The company’s troubles are centered around two key investigations: one looking at possible accounting issues and another pertaining to illegal fundraising.

The Chinese government has already moved to inject new capital into the company in the form of a $2 billion investment, but some experts see this bailout as inadequate given Evergrande’s massive size and importance. According to Bloomberg , “the company had 856 billion yuan ($123 billion) in short-term debt that came due in June, and that’s just a portion of the roughly 3.1 trillion yuan of debt Evergrande is facing due by 2020.”

Evergrande owes even more – $5 billion – to an affiliate of China Minsheng Banking Corp., “which came under criticism from Chinese regulators last year for extending loans too freely after a string of defaults.” With the company facing debt repayment deadlines all throughout this year, Beijing’s bailout package should be seen as a last ditch effort to keep Evergrande afloat.

However, some experts are skeptical that the bailouts will do anything other than delay the inevitable. “It won’t work,” said Victor Shih, political.

China’s largest real estate developer, Evergrande Group, is in a heap of trouble. The company has been dogged by questions about its accounting practices and has seen its stock price plummet to an all-time low. In the midst of this crisis, Beijing is stepping up to bail out Evergrande with a bailout package worth $79 billion – but it may not be enough.

The Evergrande Real Estate Group is the largest developer in China, with over $45 billion in assets. It has always had close links to Beijing, but it faces an uncertain future after its stock price dropped by 40 percent earlier this year. The company’s troubles are centered around two key investigations: one looking at possible accounting issues and another pertaining to illegal fundraising.

The Chinese government has already moved to inject new capital into the company in the form of a $2 billion investment, but some experts see this bailout as inadequate given Evergrande’s massive size and importance. According to Bloomberg , “the company had 856 billion yuan ($123 billion) in short-term debt that came due in June, and that’s just a portion of the roughly 3.1 trillion yuan of debt Evergrande is facing due by 2020.”

Evergrande owes even more – $5 billion – to an affiliate of China Minsheng Banking Corp., “which came under criticism from Chinese regulators last year for extending loans too freely after a string of defaults.” With the company facing debt repayment deadlines all throughout this year, Beijing’s bailout package should be seen as a last ditch effort to keep Evergrande afloat.

However, some experts are skeptical that the bailouts will do anything other than delay the inevitable. “It won’t work,” said Victor Shih, political.