China: ‘Record amount of dissatisfaction’ says Jim Molan
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The property giant faces accumulated debt of $305billion (£221billion) following changes to the rules surrounding borrowing foreign money. Such is the serious state of affairs, Dr Marco Metzler, senior analyst for Deutsche Marktscreening Agentur (DMSA) claimed the company’s collapse could spark “social chaos”. In a post on his Linkedin page, he said: “Panic in China!
“Real estate developers Evergrande and Kaisa are facing massive protests from homebuyers, retail investors and even their own employees!”
The company is one of the largest in China and has faced several deadlines to pay off interest payments to investors.
Despite claims the company had avoided defaulting on payments, the DMSA claimed Evergrande had missed five deadlines.
Those deadlines amount to $148million (£110million) in debt to foreign investors.
While the company’s debt has already reached substantial levels, Dr Metzler indicated it may even be higher due to the use of Wealth Management Products (WMP).
WMPs are products that are sold by Chinese banks and financial institutions to investors with fixed interest rates.
According to the analyst, debt related to WMPs totalled $4.3trillion (£3.2trillion) with up to 71 investors owning such products.
He concluded: “The Chinese state will therefore clearly not pay for the debts of Evergrande and Kaisa to international investors, as it will be primarily concerned with getting the riots and protests under control.
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“The collapse of a multi-billion dollar asset management product is not only a financial problem, but could trigger social chaos if Evergrande fails to allay investors’ concerns with concrete repayment plans.
“Yet another sign of the financial meltdown?”
After allegedly warning the company had missed interest payments last week, Dr Metzler claimed the company will go bankrupt within days.
If the company were to go bankrupt, it would have severe issues for the Chinese and world economies.
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The property market is essential for China’s GDP and is valued at $55trillion (£40trillion) – four times larger than the country’s GDP.
When including construction and property-related goods and services, the annual housing activity accounts for 29 percent of the country’s GDP.
If such a large company were to collapse, it could spook investors across the financial system.
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Such is the size of the economy in the Chinese market, some experts have likened its possible collapse to what happened to Lehman brothers in 2008.
This could cause lenders to stop providing loans due to the uncertainty in the market thus causing a credit crunch similar to 2008.
Further interest payments are expected throughout this month.
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