Evergrande Collapse: Top Chinese Real Estate Company Defaults on $200 Billion

Imagine the collapse of a real estate company that indirectly employs 3.8 million people and owns 1.6 million homes. In China, this isn’t fictional. The Evergrande Group, a regional real estate development company, has been deemed by some as too big to fail due to its importance in the Chinese economy. Regardless of speculation, Evergrande has defaulted on $200 billion in loans.

With millions of Chinese citizens and investors having purchases on real estate, and millions more relying on Evergrande for income, many are drawing similarities between this situation and that of the 2008 Lehman Brothers collapse. The collapse represents a fork-in-the-road moment for the Chinese government, one that may decide how free their markets will be in the ensuing decades.

The ensuing actions taken by the Chinese government will determine the future of China’s real estate market and the norms under which companies will exist. American economists are worried about the influence this meltdown will have on the U.S. market, with markets in recent months taking big hits.

The rise of Evergrande coincided with the economic advancement of China over the last thirty years. China has transformed from an agrarian society into an industrial powerhouse at a rate unseen before in history. Unlike other companies benefiting from this boom economy, Evergrande built its real estate empire through unchecked borrowing and mounting debt. As of October 2021, the company was $300 billion in debt. This is creating a horrific effect on the Chinese market because, in addition to Evergrande’s own instability, the company borrowed from Chinese banks. While some are worried about the ripple effect of destabilizing China’s economy via bank devaluations, others view this as a test of China’s economic strength.

“I don’t think they will let go of many of the features of a command economy because they have seen lots of benefits in standard of living,” Lea Hartog, Athenian humanities teacher, speculated. “But who knows, it could be indicative of them moving to capitalist structures.”

How China responds to this crisis will set an important precedent for determining how large of a role the government will play in the economy. If the government chooses not to step in and bail Evergrande out, they will set an effective warning to companies in the future that relentless and unchecked borrowing will have severe consequences. However, the immediate effects of China not bailing them out could be too much of a strain on their economy and the average working citizen.

Many view the collapse of Evergrande as a victory; unfair trade practices and aggressive actions taken in the South China Sea have many in the West viewing China as a threat to international peace.

“China is a major global threat, both morally and economically,” Jack L. ’23 said. “The fall of Evergrande is good because it will negatively impact the Chinese government.”

However the inevitable pain that will be inflicted on ordinary citizens is unavoidable.

“The collapse of Evergrande should not be viewed as a good thing regardless of international political views,” said Jack C., an Athenian boarder who lived in an Evergrande house when he was younger. “At the end of the day, it will be the ordinary citizens who had put down deposits on houses that were not built that will be hurt the most, not the government.”