Yesterday, Wednesday, US Federal Reserve Chairman Jerome Powell said that the debt problems of the Chinese real estate giant, "Evergrande" (Evergrande) appear to belong to China to a large extent, and that he does not see an equivalent in the corporate sector in the United States.

And Powell told a press conference after the conclusion of the Federal Reserve meeting, that the failure of US companies to pay their financial obligations is a very low probability at the present time.

He added that there is not much direct exposure of US companies to Evergrande's problems, but there is concern that it may affect channels of global trust.

Evergrande, the second largest real estate developer in China, with activities in 170 local cities, today faces one of its most difficult periods since its founding nearly 25 years ago, which is the inability to repay its loan payments.

According to the Chinese company's disclosure to the Hong Kong Stock Exchange, the company's total debts due to be paid are about 302 billion US dollars, which exceeds the public debt owed by countries around the world.

The beginnings of the crisis

The group's crisis began when it said earlier this month that it would not be able to repay the loans it owed.

The default is due to a sharp decline in the group's sales of real estate and the failure of other projects, amid the continued need to borrow to meet the requirements of current expenditures.

According to the Chinese group, it has assets of more than 350 billion dollars (assets exceed debts), employs nearly 200,000 workers in its subsidiaries, and has nearly 1,300 projects.

The data released by the group shows the extent to which its crisis is linked to global financial markets, which improved in late trading on Wednesday, when it announced the payment of a due payment (on Thursday) to bonds worth 4 billion yuan (620 million dollars) denominated in the Chinese yuan.

The group's statement gave no indication of whether that meant any change in payment, nor did it provide any information on possible future payments, including US dollar-denominated bonds, in March.

Rating agencies say Evergrande is unlikely to be able to repay all the debt to banks and other bondholders, according to the Associated Press.

Evergrande's debt default is due to a sharp decline in the group's real estate sales (Reuters)

debt crisis

The group's crisis is deepened by the continuous decline in its share prices, which lost an average of 85% of their value during the past few months, while its bonds are trading at a similar deep discount.

Of the group's total debt, 240 billion yuan ($37.3 billion) is due within one year.

The group reported a net profit of $1.4 billion in the first half of 2021, but says sales are starting to weaken as news of the liquidity crunch is making potential buyers nervous.

In contrast, other major developers in the real estate industry inside China have not reported similar problems, but hundreds of smaller developers have closed their doors since regulators in 2017 began tightening controls on fundraising methods such as selling apartments before construction began.

Residential real estate in China is seen as not posing a significant risk to the financial system, as most apartments are sold for cash rather than mortgages.