D H
Oct 8 · Last update 2 days ago.

What effect will the Evergrande crisis have?

The Evergrande Real Estate Group is China’s second largest real estate company and one of the most valuable property developers in the world. However in 2021 the company experienced a liquidity crisis resulting from a slow down of foreign investment following leaked news of the company being at risk of a cash crunch, this was due to Evergrande being unable to meet the payments on company debts, estimated to be in the hundreds of billions of dollars. What caused the Evergrande liquidity crisis? Are we likely to see a repeat of 2008 in China with Evergrande playing the role of the Lehman Brothers? This crisis unfolded alongside numerous social, financial and cultural crackdowns in China, what effect will the Evergrande crisis have on in both China and abroad?
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Yes, it could be bigger than Lehman Bros
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No, not like Lehman Bros
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The Evergrande shock is unlikely to have the same consequences as the financial crisis caused by the Lehman Brothers going bust, but it may be solved in much the same way. People look at China and often see different things, and many have looked at Evergrande and compared them to Lehman Brothers in the US and concluded prematurely that China is on the verge of a similar massive financial crisis. But the Chinese government have the foresight of the 2008 crisis to deal with Evergrande pre-emptively by dismissing the board of directors, taking care of suppliers so the shock doesn’t hit over sectors of the economy too hard, and then use massive foreign exchange reserves to cushion the blow. We are also likely to see good assets be taken over by the people bank of China and be put in a different part of the bank's balance sheet, in a similar style to the US did with some mortgages in 2008, finally we are likely to see the Chinese government restructure most Chinese real estate firms to take the heat out of the market. This will be informed by the Lehman Brothers more than it will be a repeat of it.

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Oct 26
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The Evergrande shock is unlikely to have the same consequences as the financial crisis caused by the Lehman Brothers going bust, but it may be solved in much the same way. People look at China and often see different things, and many have looked at Evergrande and compared them to Lehman Brothers in the US and concluded prematurely that China is on the verge of a similar massive financial crisis. But the Chinese government have the foresight of the 2008 crisis to deal with Evergrande pre-emptively by dismissing the board of directors, taking care of suppliers so the shock doesn’t hit over sectors of the economy too hard, and then use massive foreign exchange reserves to cushion the blow. We are also likely to see good assets be taken over by the people bank of China and be put in a different part of the bank's balance sheet, in a similar style to the US did with some mortgages in 2008, finally we are likely to see the Chinese government restructure most Chinese real estate firms to take the heat out of the market. This will be informed by the Lehman Brothers more than it will be a repeat of it.

Yes, it could be bigger than Lehman Bros

Evergrande is a massive real estate holding company from Hong Kong, the size of the company and fact that they are in such a dire financial situation should be seen as very worrying as the numbers here are big enough to affect the entire world if the company crashes as speculated. The problem is that Evergrande is around five times the size of Lehman Brothers, the company that help spark the 2008 global financial crash, and Evergrande are in $300 billion of debt and unable to make repayments. In the worst possible scenario this very well could become a full scale crisis, China will most likely be left with little choice but to dismantle the company, strip its assets and repackage its debts. But whether this averts a global crisis remains to be seen, it might be contained quickly enough to stop a global spread, but is still likely to have huge regional implications.

thegatewaypundit.com/2021/09/evergrande-collapsing-will-not-make-massive-debt-payments-5-times-bigger-lehman-brothers bloomberg.com/news/articles/2021-09-16/china-s-nightmare-evergrande-scenario-is-an-uncontrolled-crash finance.yahoo.com/video/china-evergrandes-potential-collapse-could-164942692.html

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Oct 26
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No, not like Lehman Bros

Shares in Evergrande fell 90% since the Chinese government cracked down on real estate speculation in July 2020, so this has been a long time coming and a further 20% decrease in recent weeks have contributed to global stock market declines. However, unlike Lehman Brothers, Evergrande holds physical assets, whereas the 2008 financial crisis was caused by misrepresenting financial assets, which is all that Lehmans Brothers owned. Furthermore, China has the tools and policy flexibility to stop this turning into a financial crisis, and most analysts and China watchers pretty much unanimously speculate that this liquidity crisis will not have the same impact as 2008.

tradernews.capital/is-evergrande-considered-too-big-to-fail cnbc.com/2021/09/22/heres-why-the-evergrande-crisis-is-not-chinas-lehman-moment.html

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Oct 8
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