Warning: This story mentions self-harm which could be triggering to some readers.
What is evergrande?
Evergrande is China’s largest real estate developer, founded in 1996. It owns over 1300 residential properties across more than 280 cities and employs more than 200,000 employees. The company possesses an electric vehicle called Evergrande Auto, a theme park called Ide Attack with more than 30 rides, a life insurance service called Evergrande Life insurance, high-end mineral water called Evergrande Spring, and a soccer team called Guangzhou FC.
How are its projects doing?
Not all of Evergrande’s projects have been successful. Their soccer team has not been winning games and is performing at a loss of $150 million to $310 million per year. Evergrande Auto is having trouble paying its suppliers and saw stock prices drop more than 90% in the past year. Finally, the developer may be selling their life insurance to pay off their debts.
What is the significance of evergrande’s debt?
Evergrande is currently the most indebted property developers in the world. They owe more than 300 billion in debt and are speculated to default soon. This is alarming as real estate accounts for more than 25% of China’s GDP.
What is the AFtermath?
Currently, there are homebuyers prepaid for 1.6 million assets that haven’t been delivered yet. Evergrande stopped repaying its suppliers, employees, and investors. Some buildings are not entirely done, and work is halted. Employees who have worked for years are being laid off.
Who is hurt the most from this?
Employees and homebuyers are taking this news the hardest. Some homebuyers spent their hard-earned money in hopes of obtaining a home to grow wealth, but are faced with the fact that they may never get their asset. Chaos has erupted in China as household citizens and investors scramble to get their money back, and employees worry about losing their jobs. Protests are happening outside of Evergrande’s building, and an investor threatened to kill herself with a knife if she didn’t get the money back on her investment.
Additionally, a group of 100 investors demanded repayment on loans. This shows how many working class citizens relied on Evergrande for a stable job, trusted and bought a home from Evergrande, and trusted Evergrande enough to invest their money in the company. Many of these people who trusted Evergrande will lose most of their wealth and money and be significantly hurt by Evergrande’s actions.
Does history repeat itself?
So what? Why does this all matter? This crisis shows that during a financial crisis, it is typically always the lower and middle class workers who are hurt the most. For example, during the 2008 financial crisis in the United States, banks who were at fault for giving out unqualified loans were bailed out by the government. Instead, home owners across the United States loss their homes and went into debt. Although we haven’t found out if China’s central government will bail out Evergrande, we already see the working class citizens facing the consequences of the crisis and not receiving the homes that they already paid for.