Expect the Chinese government to contain the company's debts before damaging the banking system

The world economy .. Experts: “Evergrand” will not cause a new global financial crisis

Although the giant Chinese real estate company, Evergrande, which is suffering from a financial crisis, announced that it had reached an agreement on a plan to pay its debts due in 2025, economists warned that the global economy may be affected by the effects of the crisis of the company, which is the second largest real estate developer in the world. China, but at the same time they stressed that "Evergrand" will not cause a new global financial crisis.

crisis containment

And the agency “Bloomberg” reported that the Chinese company will pay 5.8% of its debts, amounting to about $ 305 billion, and experts said that the company’s crisis is likely to be contained by the Chinese government before it harms the banking system, noting that it is not expected to lead to A broader global financial contagion.

Despite this, investors are concerned that the Beijing government may not intervene, leading to major financial problems for shareholders and domestic bondholders.

fluctuations

“Everyone expects the Chinese government to intervene, especially since (Evergrand) is an important company,” said Jimmy Chang, chief investment officer at Rockefeller Global, noting that “the Chinese company will not lead to the next global financial crisis, but it may lead to more. from economic fluctuations.

Zhang added that the government needs to intervene quickly because the "Evergrand" has begun to affect the market sentiment, noting that real estate is very important to the Chinese economy, especially since home ownership is more than 90%, as many Chinese buy apartments as an investment, which requires containing the crisis.

He explained that the magnitude of China's economy may affect the rest of the world, adding, "If China will face a serious economic problem because of (Evergrand), the rest of the global economy will suffer from infection."

difficulty

"The difficult thing about understanding China is the lack of clear answers in general," Rick Rieder, chief investment officer at BlackRock, told CNBC. Because it is under government control, so there is government interference.”

to intervene

For his part, said Mark Williams, chief economist at Capital Economics, "I think the Chinese authorities will eventually step in to at least make sure that the broader financial system does not experience a crisis."

“If you are a real estate developer, you will face a few bleak months ahead, but policy makers will step in to make sure the banking system is okay,” he added.

Williams explained that "there are 1.4 million real estate owners who have paid money, and are waiting to hand over (Evergrand) properties."

real estate market

In turn, Jim Chanos, the head of "Kinacots" company, said that China has tried to stop speculation in its real estate market four times, since 2011, adding: "Every time the economy slowed down very quickly."

He explained that "the danger is if there are problems in other real estate companies, real estate values ​​will be affected, and there may be turmoil in the housing market," noting that "this would lead to a decline in the Chinese import market, in addition to a slowdown in demand for all kinds of raw materials."

important center

"China's economic growth and China's intertwined nature in the global economy are enormous, so China as an important market hub will not fade any time soon," said Jim Chanos, president of Kainacuts.

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