Latest News

Back to Latest News back

 

Looming fall of Evergrande symbolises current plight of Chinese economy

Looming fall of Evergrande symbolises current plight of Chinese economy
October 22, 2021

With Chinese real estate giant the Evergrande Group advising overnight that there is “no guarantee” that it can meet its US$305 billion debts, starting with a deadline on Monday that could trigger a default, the implications for global financial markets, as well as for the Group’s interests in entertainment, sport and tourism are significant.

Shares in Evergrande, China’s second-biggest property developer with thousands of projects, fell in early trading on Thursday amid concerns about unsustainable debts, sparking fears of contagion in China’s real estate sector.

This followed Evergrande having announced on Wednesday that it had formally abandoned plans to sell a 50.1% slice of Evergrande Property Services, one of its most profitable units, and said there was “no guarantee” it could meet its financial obligations in order to stay afloat.

The company has been trying to offload assets since September to generate funds to repay creditors, starting with 1.6 million homebuyers who have bought as-yet unfinished properties off the plan, building contractors and suppliers, and then Chinese banks and bondholders.

Evergrande also owes billions of dollars to offshore bondholders and has already missed several key bond interest payments since September.

Explaining Evergrande’s crisis and its consequences, regular Australasian Leisure Management contributor, Kunal Sawhney, Chief Executive of Kalkine Media, writes that China’s transformation from an agrarian economy into a capitalist structure was quick. Following the transformation, big conglomerates like Evergrande emerged that took China to new heights and helped it become one of the most powerful nations in the world. However, as they say, “change is the only constant in life,” Evergrande’s fall symbolises China’s current plight.

Before the fall of Evergrande
As China embarked on a journey of transforming into a capitalist structure, Evergrande emerged. It gave a path for the Chinese villages to become metropolitan cities. Initially, it tapped upon the middle-class community of China, and later, it escalated its business by venturing with other big giants. 

Businessman Hui Ka Yan was the first founder of Evergrande; initially, it was known as the Hengda Group in 1996 in southern China. Now, Xu Jiayin is the man behind the brand Evergrande. He became one of the most influential people in Beijing and beyond. His brand owns several food brands, manufactures electric cars, and sponsors one of the biggest football teams in China.

What pushed Evergrande into trouble?
Evergrande expanded its business exponentially via lumpsum borrowings. However, recently the Chinese government changed its policies in a bid to restrict big conglomerates like Evergrande to depend upon an extensive borrowing system. 

Currently, the real estate developer owns more than US$300 billion to its investors. And, after the Chinese Government’s new amendments, it had to offer its properties at discounted rates so that the money would keep coming. 

Due to selling property at heavy rates, the company incurred huge losses and couldn’t pay off the recent interest payment to its investors. As a result, the share prices of Evergrande immediately dropped as low as 80%, and the bond prices are now also rated low by global credit rating agencies. 

What implications does the world have to bear following Evergrande’s fallback?
When big conglomerates like Evergrande suffer losses, the implications are manifold. The capitalist world is highly intertwined. Businesses, organisations, committees and individuals, all work together in a co-dependency system. And, when one suffers, the effects are to be borne by others too. 

Such is the case with the recent troubles faced by Evergrande. 

The company wouldn’t pay its interest instalment to the inventors, which shook the market. If Evergrande falls ultimately, the consequences would be enormous for the Chinese economy and the world economy. 

First of all, being the biggest real estate company in China, thousands of people had purchased properties from Evergrande before the construction work began. So, if Evergrande becomes bankrupt, all the buyers will lose their deposits. In addition, other construction and design firms that work with Evergrande would also incur losses if it gets busted. 

However, the most significant consequence would be borne by the Chinese financial system. Evergrande has borrowed money from 171 domestic banks and 121 other financial firms. So, if the company becomes bankrupt, the Chinese financial system will receive a significant backlash. 

If that happens, the Chinese financial system will have a credit crunch, following which other companies would face issues in borrowing. 

Being the second-largest economy globally, China has manifold impacts of its domestic economy onto the world economy. If the country gets into a credit crunch, it won’t be a good sign for businesses, especially when the industries are finally getting back on track after a stagnancy of more than a year. 

Besides, the enormous implication of the credit crunch would be that foreign investors would be hesitant to invest their money into China. Thus, the country has to see how it’s going to manage its business and financial system without making any of the two suffer. 

As well as real estate, the Evergrande Group has interest in the automotive, health, food and agriculture and finance industries.

In leisure its interest include:

Tourism and recreation
Evergrande owns two major theme park brands 'Hengda children of the world', 'Hengda water world', and a large tourist on the Chinese island of Hainan to spend.

The under-construction Ocean Flower Island in Hainan is one of its major projects.

Sport
In 2010, the Group acquired Guangzhou Evergrande FC of the Chinese Super League and invested heavily to acquire top players. In 2013, under Marcello Lippi, the group won the 2013 AFC Champions League. Alibaba also has a 50% stake in the football club.

In April last year, Evergrande commenced construction on the Guangzhou Evergrande Football Stadium.

The company is a sponsor of the Women's Guangdong Evergrande Volleyball Club and runs the Evergrande Football School.

Entertainment
The Group operates HengTen Networks, which purchased Ruyi Pictures in October 2020 and has run the Hengda Music Festival Tour Concert.

Kunal Sawhney, Chief Executive, Kalkine Media

Images © Lewistse | Megapixl.com (top), the new stadium being built by the Group for Chinese Super League champions Guangzhou Evergrande (middle) and © Casfotoarda | Megapixl.com (below).

About the author

Kunal Sawhney

Chief Executive, Kalkine Group

An entrepreneur with revolutionary ideas, Kunal Sawhney is a financial professional with wealth of knowledge in equities who aims to transform the delivery of equity research through tech-driven digital platforms

With his knowledge, skillset, and overarching vision, Sawhney established Kalkine (a business that is based on Digitally Powered Architecture and Extensive Data Science led Premium Research) that has become one of the fastest growing equity market research firms across Australia in 2014; and subsequently, in other emerging and developed markets.

Sawhney’s entrepreneurial and commercial skills backed by the passion to establish a tech-empowered research platform, helped in building Kalkine’s global presence across diverse geographies - Australia, New Zealand, Canada, and the United Kingdom. Further, the plans for the US launch in 2021, have set the premise for attaining an all-encompassing client reach for Kalkine’s Subscription and Media Operations.

With a Master of Business Administration degree from University of Technology, Sydney; Sawhney’s business acumen has enabled his brainchild, Kalkine, help clients navigate through equity related matters in a proficient and seamless manner.

Sawhney is featured regularly on CNBC, Sky Business, Biz News, Daily Mail, Yahoo Finance, KCBS Radio (Audacy), Bloomberg, Sydney Morning Herald, Global Banking and Financial Review and many more.

Click here to visit the Kalkine website.

Read more from this author

Related Articles

17th October 2021 - Are Australian leisure stocks poised for growth?

13th September 2021 - Technology in sport changes the game

29th August 2021 - What employers need to consider about vaccinations for staff and consumers

27th August 2021 - Hong Kong and Macau to partner Guangdong in hosting China’s 2025 National Games

25th August 2021 - Australians’ travel plans yet to rise after vaccinations

15th August 2021 - Virtual tourism a beacon of hope in a post-pandemic world

3rd August 2021 - COVID-19 hits commercial value of the Tokyo Olympics

17th April 2020 - Construction starts on new Guangzhou stadium

27th March 2019 - White paper flags rise of Chinese Super League football

12th February 2018 - China invested nearly US$3 billion in school football facilities from 2015 to 2017

31st August 2017 - Evergrande Group to build 15 Children’s World theme parks across China

26th April 2016 - Guangzhou Evergrande back 2016 Money In Sport Forum

2nd January 2016 - Wanda Sports to establish global base in Guangzhou

13th March 2015 - China looks to football success and future FIFA World Cup hosting

24th July 2009 - Evergreen Synthetic Turf to distribute GreenFields surfaces


Asking a small favour
We hope that you value the news that we publish so while you're here can we ask for your support?

The news we publish at www.ausleisure.com.au is independent, credible (we hope) and free for you to access, with no pay walls and no annoying pop-up ads.

However, as an independent publisher, can we ask for you to support us by subscribing to the printed Australasian Leisure Management magazine - if you don't already do so.

Published bi-monthly since 1997, the printed Australasian Leisure Management differs from this website in that it publishes longer, in-depth and analytical features covering aquatics, attractions, entertainment, events, fitness, parks, recreation, sport, tourism and venues management.

Subscriptions cost just $90 a year.

Click here to subscribe.

 

supplier directory

The Complete Guide to Leisure Industry Products & Services.

See the directory see all

WATERPLAY Solutions Corp

Whether your goal is increasing your centre's revenues or creating an engaging environment, why not add play to your project? If you're looking for stylish aquatic play features, kid-tested…

read more

Aquatics / Attractions / Play / Recreation / Waterparks

 
 

Aussie Strength

We are Aussie Strength. The ultimate supplier for Commercial Gym Equipment that's built to deliver in the toughest environments. From USA-Built hardcore weight training equipment from Arsenal…

read more

Fitness / Technology / Wellness

 
 

LIFE FLOOR (Aus & NZ)

Our team believes floors should be beautiful, comfortable, and engineered for safety, even when wet. Life Floor tiles meet six unique performance based standards: slip-resistance, impact absorption,…

read more

Aquatics / Play / Recreation / Safety / Surfaces

 
 

SENtag

Developed in Europe, this innovative system offers a safety management solution for swimming pools that checks individual swimmers via their wristband - monitoring their depth and time. Sensors…

read more

Aquatics / Hospitality / Safety / Technology / Waterparks

 
 

TECHNOGYM AUSTRALIA

Technogym is the leading company in the Wellness and Fitness field all over the world. With 2,200 employees, 14 branches in Europe, U.S., South America, Asia  and Australia, Technogym exports its…

read more

Fitness / Technology / Wellness

 
 

Polin Waterparks

Polin was founded in Istanbul in 1976, and has since grown into a leading company in the waterparks industry. Today Polin is one of the world leaders in the design, production, and installation of…

read more

Aquatics / Attractions / Play / Waterparks

 
 

Tim Batt Water Solutions

Tim Batt Water Solutions are at the very forefront of the commercial aquatic business in Australia, with over 30 years specific experience supplying and installing chemical control and dosing…

read more

Aquatics / Environment / Recreation / Technology / Venues

 
 

Spill Station Australia

Compliant chemical storage and decanting solutions. Includes spill kits, spill containment pallets, chemical decanting decks and safety shower and eyewash equipment. See our full range of solutions

read more

Aquatics / Safety / Security / Venues

 
 
 
 

get listed with our suppliers directory

Get your business noticed in our targeted directory. Viewed by 10,000 industry professionals per week!

list your business