Is Evergrande’s debt crisis controllable?

The Chinese government has responded to Evergrande’s debt crisis again on 15 October. Zou Lan, head of the financial market at China’s central bank, said that Evergrande Group’s problems are “an individual phenomenon“.

She was quick to add that, this does not represent the whole picture of the real estate industry in China whilst also stating that the risks faced by this property giant are “controllable”.

The first time Chinese officials openly talked about Evergrande’s $300 billion debt woes was in October 2021. At the time, China’s National Bureau of Statistics spokesman said that a few leading property companies were dealing with operational challenges.

However, their impacts on the industry are yet to be observed. It is interesting to note that it is expected the property industry will remain stable, with Beijing’s efforts to curb the price growth and make homes for people to live in.

Overall, the Chinese government reassured the country that Evergrande’s debt crisis would not impact China’s real estate industry. However, Chinese economists hold a different view, Xiang Songzuo, economist and professor at Renmin University, believes that this crisis is likely to gradually extend to the entire economy.

Xiang said that the government gave a positive signal in the hope of stabilising the market rather than an accurate depiction of the fallout from Evergrande’s debt.

In addition, the fact is that many property enterprises are facing similar issues as Evergrande, namely, running up huge debts with the lenders, many banks, and securities companies, undergoing a difficult time. Xiang also warned investors not to go into the property market unless with absolute confidence.

For Xiang, Evergrande has one main way to get out of its debt crisis, although it is not easy to approach. Namely, it is to sell the shares, something the group is currently working on, but this can drop its stock price as a result.

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