China’s Evergrande Property Developer Avoids Default, But Woe Is the Coming Wall of Debt That Could Affect the World

The world’s most indebted property developer, China Evergrande Group, teetered on the edge of a destabilizing default only to avert defaulting on a payment at the last minute. This was the third time over the past month. On Thursday, a source said several bondholders had received overdue coupon payments.

The financially troubled developer has been floundering from deadline to deadline over recent weeks as it copes with more than $300 billion in liabilities. About $19 billion of that are international market bonds.

It was reported that several bondholders received interest payments that had a total of over $148 million due last month. These were done in three bond tranches, according to Cailianshe, a Chinese media outlet.

If Evergrande failed to pay, they would have ended up in a formal default by the company which would have triggered cross-default provisions for other Evergrande dollar bonds, worsening a debt crisis that is hanging over the world’s second largest economy. Global markets were rattled.

“The near-term fix seems to be happening, but there’s a long way to go before this issue gets sorted out. These are early days,” the source with knowledge of the issue said, referring to Evergrande.

There are almost 700 cities in China. The real-estate sector makes up about 29% of the country’s total GDP. Though the Chinese real estate market has been getting a lot of media attention lately, thanks to the Evergrande debt crisis, that’s not the only big problem the housing market in China is up against.

About 20% of urban housing properties in China – around 65 million properties – believe it or not, are empty. These properties span across hundreds of square miles and have way more empty buildings than occupied ones. They call them “ghost cities” and they have infrastructure, well-connected roads, skyscrapers and a lot of public spaces but they are completely without residents.

Why so much empty real estate just wasting away?

According to the Chinese constitution, all the land in China is owned by the state. Whenever developers want to build on some land, they must lease it from the government, most often by participating in local land auctions.

In China, only about 7% of the people invest in stocks. Real estate is where most Chinese invest. Around 90% of Chinese are homeowners.

All that building of properties brings in a lot of money for the Chi-Com government.

Check this out:

With billions of people and not many jobs, the Communist Chinese government started programs to increase real estate development to provide jobs for the people. At the same time, the land purchases for development helped fill the government’s coffers, too.

The problem Evergrande brings to the rest of the world is if they default, a chain reaction will hit international markets the same way it happened in the United States in 2008 after a 30-year Democrat housing market scam finally crashed the market, which crashed insurance, and then destroyed credit. The world felt that, and we will feel China’s real estate crash when it eventually happens.

Evergrande is at the center of an increasing squeeze in liquidity in China’s $5 trillion property sector.

Even though the developer was able to avoid a default once again, there are problems in the property sector that show no signs of slowing down when there is a wall of debt coming due.

This week, the US Federal Reserve Bank (which is no more federal than Federal Express) gave warning that China’s struggling property sector could present global problems. And no one has any idea if Beijing is going to get involved with a bigger national plan to tackle the issue. That’s what socialist governments always do. They crash an economy so that they can save it. Think Biden administration.

In short, China’s economy is now a powder keg, and it comes at a time when supply chain problems are causing economic woes in other markets. I wonder if LeBron James is still going to suck up to the Chi-Coms once his checks start to bounce?