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Why the collapse of Evergrande could cause an economic catastrophe in China and Australia?

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Chinese real estate giant Evergrande is just 48 hours away from a potential collapse – this is how it could cause an economic catastrophe in China and Australia ALREADY suffers

  • A deal that could have saved Chinese real estate giant Evergrande fell through
  • Hong Kong’s Hopson Development Holdings withdrew from the deal to buy assets
  • Evergrande Is $400 Billion Debt, Missed Three Annual Interest Payments
  • 30-day grace period on this debt obligation to bondholders expires on Saturday










China’s second-largest real estate developer, Evergrande, is on the brink of collapse after a crucial deal to stop a bankruptcy fell through – and this could have major ramifications for Australia.

The 25-year-old mega-apartment developer has debts of more than $400 billion and has missed three annual interest payments to bondholders in the past month.

A 30-day extension for an offshore debt service obligation expires Saturday – the end of a grace period that started at the end of last month.

Now the company, founded by billionaire Xu Jiayin, could end Hong Kong-based Hopson Development Holdings pulling out of a $3.4 billion deal to buy 50.1 percent of Evergrande’s real estate arm.

China’s second-largest property developer Evergrande is on the brink of collapse after deal to delay a default fell through – with major ramifications for Australia (pictured is the Evergrande Center in Shanghai)

Evergrande has admitted it would struggle to meet debt repayment requirements, raising fears of default.

That would cause greater problems in the financial markets in China, Australia’s largest trading partner and the world’s second largest economy.

“There is no guarantee that the group will be able to meet its financial obligations,” Evergrande said late Wednesday night on the Hong Kong stock exchange.

Evergrande, headquartered in Shenzhen, saw its share price fall 10 percent during Thursday’s Asian trading.

It had suspended trading on Oct. 4 pending “an insider announcement of a major transaction” that has not materialized.

In August 2020, the government of Chinese President Xi Jinping introduced a new “three red lines” policy that requires developers to sell assets, even at a cheap discount, to avoid piling up on more unsustainable debt.

Billionaires have also been targeted as part of his “common prosperity” program to redistribute wealth away from the ultra-wealthy.

The 25-year-old mega-apartment developer has debts of more than $400 billion and has missed three annual interest payments to bondholders in the past month.  A 30-day grace period for debt repayment ends on Saturday

The 25-year-old mega-apartment developer has debts of more than $400 billion and has missed three annual interest payments to bondholders in the past month. A 30-day grace period for debt repayment ends on Saturday

Now the company, founded by billionaire Xu Jiayin, could stop Hong Kong-based Hopson Development Holdings pulling out of a $3.4 billion deal to buy 50.1 percent of Evergrande's real estate services business.

Now the company, founded by billionaire Xu Jiayin, could stop Hong Kong-based Hopson Development Holdings pulling out of a $3.4 billion deal to buy 50.1 percent of Evergrande’s real estate services business.

China already has 65 million empty apartments, with enough space to house 90 million people in a country of 1.4 billion.

The real estate crisis has coincided with orders from the Chinese Communist Party to cut steel production to meet net zero climate change targets by 2060.

As a result, the spot price of iron ore, Australia’s largest export, has halved from $200 per tonne at the end of July to less than $100 at the end of September.

The latest developments in Evergrande have wreaked havoc on Australia’s major miners, with Rio Tinto falling 1.3 percent to $96.79 on Thursday.

Iron ore group Fortescue Metals Group fell 0.6 percent to $14.41.

The minutes of the October meeting of the Reserve Bank of Australia highlighted concerns about Evergrande.

“Although Evergrande is small compared to the financial system in China, members noted that there is a risk to financial stability from spillovers to other developers and financiers if the solution to Evergrande’s problems were disorderly,” it said.

Yi Gang, governor of the People’s Bank of China, admitted on Monday that Evergrande’s problems are “a little worrisome” in a virtual meeting of the Group of 30, but he was optimistic there would be no broader effects.

The spot price of iron ore, Australia's largest export, has halved from $200 per tonne in late July to less than $100 in late September (pictured is a dump truck at the Solomon Hub mining operations of the Fortescue Metals Group in the Pilbara region in Western Australia)

The spot price of iron ore, Australia’s largest export, has halved from $200 per tonne in late July to less than $100 in late September (pictured is a dump truck at the Solomon Hub mining operations of the Fortescue Metals Group in the Pilbara region in Western Australia)

“Overall, we can mitigate Evergrande risk,” he said.

Nevertheless, Reserve Bank of Australia governor Philip Lowe and his board members noted that China’s efforts to address problems with the financial system could potentially reduce growth in China.

“In China, authorities had continued to strike a balance between addressing the increased vulnerabilities of the financial system and avoiding realizing those vulnerabilities that would severely curtail economic growth,” the RBA minutes said.

“This trade-off was a hallmark of the significant focus on the liquidity crisis Evergrande is facing.”

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