The name of Evergrande has been all over the news these past three months, as the world stands in watch of the consequences that the giant firm’s demise may beget. What is Evergrande? How and why did this crisis come about? Where might it lead China’s future? And is this Chinese crisis important for the global economy? We rewind through the news and provide an answer to all these questions. 

What is Evergrande and what happened to it?

Evergrande is one of the largest real-estate developers in China. Created in the Canton province in 1996, it has since been surfing on the wave of growing real-estate prices to start thousands of construction projects across the country. In fact, Chinese real estate has been consistently among the most expensive in the world, cities like Shenzhen showing a median house pricing 43 times higher than the median income. In comparison, London’s median housing price is only 13 times higher. With soaring prices, Evergrande and others have been eager to supply housing for the growing market.

So eager, in fact, to surf on rising demand and skyrocketing prices, that Evergrande funded most of their projects with borrowed money. To avoid defaulting on its enormous loans, and to continue expanding without alarming its creditors, this last decade the company borrowed even more to reimburse previous debt, estimated this year to be around a dizzying $300 billion. Nevertheless, as long as real-estate prices continued to augment at a steady rate, the company’s strategy could be sustained. 

However, over the last year, the rapid increase in real estate prices has slowed down, and even declined in September and October 2021. This has reduced the projected value of their construction projects, slowing their cash flow, and leaving the company with hundreds of unfinished projects and billions of dollars in debt. The original plan of borrowing more to meet payment deadlines was also made impossible by the new “Three red lines” regulation introduced by Beijing last year. These regulations made it more difficult for already indebted real estate companies to borrow money, in an effort to curtail the debt-binge of Chinese companies across the board. 

Eventually, on the 23rd of September, Evergrande missed a $83 million payment to foreign investors. It has since been missing other USD debt payments in October, spooking investors and sparking fears of bankruptcy. 

On the 8th of December, the Fitch ratings agency declared that Evergrande had officially defaulted on the payment it failed to make in September. This downgraded its rating to “Restricted default,” a step before bankruptcy, and a less than desirable status for a company in dire need of money. 

Why is this making global news?

Evergrande’s fall poses the grave threat of a larger real estate market crash in China. 

As one of the world’s largest real estate corporations, Evergrande employs around 4 million people, and has millions of customers who have paid sky-high prices for yet-unbuilt houses and apartments that they may never see completed. 

More concerning yet is the possible repercussions on other contractors and real-estate developers. Evergrande’s size implies that a myriad of other companies depend on its activities. In October, a smaller rival, Fantasia holdings, also missed a debt payment, fuelling worries that the Evergrande crisis may have already spread to the entire sector. 

A bankruptcy of such a large company carries the risk of sending the country into recession, with aggrieved consumers reducing their spending and investors looking elsewhere for real estate. 

Will the Chinese government step in?

China is now facing a dilemma between fostering sane economic growth, or averting a large-scale economic crisis. Since 2018, China has made slowing down its worryingly high debt accumulation a top priority. It wants to avoid a catastrophic crash by regulating over-indebted companies. 

There have been other instances of the Chinese government taking stakes in overeager, indebted companies. Back in 2020, an airline operator, HNA group, was seized by the local government of Hainan, after amassing $61 billion in debt while engaged in an aggressive acquisition strategy. That, and the “Three red lines,” signal China’s intention to quickly clamp down on irresponsible companies. Chances of the CCP choosing to “send the right message” by letting Evergrande go bankrupt instead of offering them a government bail out for the sake of economic security are high. “The company must be punished,” said economist He Fan at Peking University’s HSBC Business School.

There are signals that the Chinese government will let Evergrande die for the sake of its reforms. Goldman Sachs analysts wrote that in the current situation, policymakers were less likely to extend full bailouts, even to large corporate actors. In the face of the CCP’s reforms, there is no such thing as “too big to fail.” 

Rumors of an acquisition offer of $5 billion from a Hong-Kong listed company raised hopes of Evergrande snatching some respite from the jaws of bankruptcy. But its deadlines next year will oblige it to repay over $7 billion in debt, exceeding by far that one-off cash flow. No solution is emerging thus far to the company’s predicament. 

The beginning of this story reminds us of the premise of the 2008 global financial crisis. Starting with the burst of a real estate bubble in the US, it soon contaminated the global financial market. Are we in for a re-hash of the 2008 economic nightmare?

What are the chances that Evergrande’s bankruptcy will head us into a global crisis?

Since the beginning of the crisis, Chinese officials have been sending out assurances. “Financial institutions aren’t strongly exposed by Evergrande. The risk of contagion to the financial sector is mostly controllable,” the Director of the People’s Bank of China financial markets asserted in a 15th October press conference. Most of Evergrande’s debt is held domestically, only $21 billion of the $300 billion debt is owed abroad. This calls for relativising fears of a spill-over into the world economy.

Despite these reassurances by the Chinese government and the Evergrande board, the global market is still doubtful. A France 24 report shows one of the company’s large construction projects in Jurong, with hundreds of new apartments and a theme park, sitting paralysed since October. Employees formerly working on the site reported not receiving payments since  August, despite the company’s reports that no projects have been abandoned.  

Experts everywhere are warning us against being too quick to dismiss the global repercussions of an Evergrande bankruptcy. 

For economist George Magnus, there is little chance that the incoming property crisis will contaminate the global networks of the Chinese economy, because the political stakes for Xi Jinping are too high for the leader to sacrifice Evergrande, ahead of the 20th CCP congress next year. He does not predict another 2008-like Global Financial Crisis : “I expect that rather than a spectacular Lehman-type crisis, China will go through a period of financial distress, which will squeeze growth hard,” the independent economist says. 

More importantly, though, much of the way the world currently works depends on uninterrupted and elevated Chinese growth.” Magnus warns about the extra-economic global impacts of a domestic crisis: “Think of global supply chains, exports and growth, as well as China’s own geopolitical leverage and narrative; its ambition and global presence, which depend on its economic heft, might be compromised in unpredictable ways.” 

Others are more alarmed. An ICIS report shows that the Evergrande crisis is bound to slow down overall economic growth in China, as aggrieved consumers have already started cutting down on spending, and supply chains that boomed along the property sector suffer the impact of decreased confidence. 

The Chinese property iceberg, of which Evergrande is the menacing tip, raises important questions about the future of the Chinese economy, with potential spill-over into the rest of the world. No one confidently predicts an imminent economic crash, but some have spotted signals that the consequences may be more far-reaching than initially thought. 


  • Oscar is a postgraduate student in International Security at PSIA, holding a BA in History and International Relations from King’s College London. He is a Franco-Spanish national guilty of also liking the British. Specialising in intelligence and cybersecurity, his areas of interest include climate change, sustainability, but also terrorism.