The bigger they are, the harder they fall. A true enough statement, and one that we’ve seen happen time and time again. It happened once with Goliath, and it would appear it is happening again with the Chinese company Evergrande.
According to CNN Business, Evergrande is a Chinese based Global 500 company that deals with expansive property development and growth. The initial trouble started when Evergrande’s debt steadily increased into what is now about $300 billion. Their first major problem occurred just a few short weeks ago, when the company failed to meet one of the deadlines to pay back their debt. Since then, the company’s stock has lost 85% of its total value.
However, the major source of panic stems from the fact that Evergrande holds a majority of Chinese real estate, and real estate happens to be the number one investment amongst Chinese citizens. This means that not only is the company suffering, but the Chinese people are losing money rapidly as the stock value decreases. With the crumbling of the company, the entire Chinese financial market is in an uproar, and the benefactors of Evergrande’s international deals await anxiously with how the company is progressing.
The international component surrounding Evergrande’s collapse is a crucial factor to take note of, as it becomes a growing concern that the future of the company could lead to a global market crash. If this should happen, countries across the globe would suffer from major financial downturns, and I have no doubt that the ramifications of the crash would last for a considerable amount of time.
However, all is not lost for the economy. Even though Evergrande and the Chinese economy have been co-dependent for many years, the Chinese government is determined to bolster the crippled market. CNN Business further comments, stating “over the past few days, the People's Bank of China has injected some cash into the financial system, to help settle nerves. On Tuesday alone, it added 100 billion yuan (approximately $15.5 billion), saying it was to keep liquidity going.”
The fact that a boost like this was warranted indicates the depth of panic that is currently ravaging China. The panic has led the top financial advisors across the globe to offer their expertise in helping to stabilize the Chinese market, and to help Evergrande regain financial footing. Still, only time will tell whether or not their efforts will have been in vain.
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