The Evergrande Saga has been making headlines for weeks now and the world citizens are just beginning to grasp the severity of the matter. Last week’s Crypto market crash has been partly attributed to the crisis.
Experts are claiming that it is just the beginning and that if caution is not applied, things could get much worse. Some have claimed that it is likely to affect the world economy, cryptocurrency, and even households.
By the end of this article, you will have a clearer understanding of the crisis, its effects, and how the Chinese government is handling it.
Explaining the Evergrande Crisis
For those who have not been keeping up with financial news, Evergrande (which is not so grand right now) is a Chinese Real-estate giant. Besides its real estate endeavors, it owns a soccer team and a bottled water business. It is the most independent real estate company in the world. It is therefore a key player in the Chinese and world economy at large.
However, after years of heavy borrowing, the company owes over $300 BILLION in debt. Over a week ago, the company announced that it may default on its debts. This will hit China’s economy along with many other countries all over the world.
Last week the company was supposed to make an $83 million payment to a foreign investor. The whole world was watching to see what would happen. Believe it or not, the deadline passed and so far there is no indication that the company has met its obligations. People are starting to wonder what would happen if this huge debt were to go sour.
How China is handling the situation
China’s ability to control financial panics seems to be fading. They believe that they have control of the situation by concealing the details of the crisis; however, things seem to be getting out of hand.
So how is the Chinese government handling the situation?
1. Managing protests
As you would expect, the Chinese citizens are worried about the looming crisis and what it could do to their economy. People have been protesting along the streets and around the Evergrande premises. The government is trying to dissolve the protests and even going as far as quieting some before they set off.
2. Censorship of the press and social media
The government is making it difficult for the general public to fully grasp the details of the crisis. This move is aimed to keep people in the dark to avoid more protests.
3. Unclear involvement
So far it is not clear whether the government is going to take care of Evergrande’s debt or not. Some people claim that the government is starting to intervene by injecting money into the company while others claim that the government will not get involved to teach a valuable financial lesson to the corporates in the country.
How the Crisis is likely to affect you.
You are probably reading this from Africa or Europe and thinking that you are safe, that may not be the case. This crisis is likely to affect people all over the world.
- Rising inflation – it’s happened before, anytime the Chinese economy is in trouble, the whole world economy is in trouble.
- Anxiety – Any investor should be concerned, whether you have a direct affiliation with Evergrande or not. Our economy as we know it is a web and we are all intertwined.
- Reduced quality of life – with inflation comes the reduced value of money and reduced quality of life. This effect is going to be felt mostly by middle and lower-class Chinese citizens.
- Unemployment – Thousands if not millions of people are about to lose their jobs.
- Disruption of the daily routine – The streets in China are a mess with all the ongoing protests and uncertainties.
People have claimed that even if the government decides to step in, it may not achieve much as it may be too late to save the company. People have called it a huge black hole to imply that no amount of money can resolve the issue. China was already dealing with corporate debts and they had made some projects before the pandemic. Sadly, they will have to take a few steps back as the impacts from such a large default would be remarkable.