Global markets plunge as Chinese real estate giant is on the brink

Global stock markets plunge as Chinese real estate giant Evergrande teeters on the brink of collapse with debts of more than $300 BILLION and firm threatens top execs with ‘severe punishment’

  • Evergrande’s soaring debt has crushed credit rating, share prices and reputation
  • Rumours of chaos prompted bosses to warn of ‘severe punishment’ for top execs
  • Investors are fearing financial bloodbath in China, triggering global sell-offs  
  • Dow Jones shed 1.7% this morning after London tanked earlier with 1.5% drop 

Global stock markets plunged on Monday as Chinese real estate giant Evergrande teetered on the brink of collapse with debts of more than $300 billion.

Shares in the once-mighty Evergrande Group plunged 12 per cent in Hong Kong ahead of debt repayment deadlines later this week, sparking contagion fears across the world. 

Damaging reports of chaos within the firm prompted bosses to vow ‘severe punishment’ for six top execs after they were found to have redeemed their investment products ahead of maturity dates.

Now, as default appears all but inevitable, trading floors across the world are gripped by fears that the bloodbath could cross China’s borders, with investors already on red alert over spiking wholesale gas costs. 

Wall Street joined the global sell-off this morning, with the Dow Jones shedding 1.7 per cent after London tanked earlier with a 1.5 per cent drop.

Throughout last week, the concourse outside Evergrande’s mirrored offices in the southeastern city of Shenzhen was occupied by unpaid contractors, angry sales agents and investors.  

This aerial photo taken on September 17, 2021 shows the halted under-construction Evergrande Cultural Tourism City, a mixed-used residential-retail-entertainment development, in Taicang, Suzhou city

The FTSE 100 (left) and the Dow Jones (right) were rocked by the market chaos in China on Monday. Wall Street followed Asia and Europe down, with the Dow Jones Industrial Average shedding 1.7 percent at the open

In an apparent response to rumours of chaos, Evergrande has offered property and parking spaces instead of cash repayments of its debts. Investors have given the plan a frosty reception, citing a collapse in faith.

‘What I want is cash,’ said an investor who identified himself only by his surname Feng. ‘I’m not considering this plan.’ 

Disgruntled Evergrande staff told AFP they were pushed to ramp up sales of financial products promising generous returns – or to invest more themselves.

Rates of return ranged from seven to nine percent, according to staff and advertisements seen by AFP.

‘They wildly encouraged us to boost performance, giving us rewards,’ said an Evergrande Wealth sales consultant on condition of anonymity.

But she claimed it became impossible to reach managers in early September, when the company started facing trouble making repayments – triggering alarm. 

Sentiment abroad is being dented by strong inflation, the Federal Reserve’s plans to taper monetary policy, surging infections with the Delta variant of coronavirus, and signs of weakness in the global recovery.

Wall Street followed Asia and Europe down, with the Dow Jones Industrial Average shedding 1.7 percent at the open and the tech-heavy Nasdaq 1.8 percent.

Hong Kong earlier dived 3.3 percent, spearheading Asian losses, with Evergrande widely expected to default on upcoming interest payments this week.

Europe also tanked, with London losing 1.5 percent and Paris down 2.2 percent, while Frankfurt’s newly expanded index dropped 2.6 percent in afternoon deals.

World oil prices pared earlier losses but remained lower on energy demand worries.

With all eyes on Evergrande, ‘Investors are not sure whether Chinese authorities will be able to contain the fallout from a possible disorderly collapse of the heavily indebted company,’ Thinkmarkets analyst Fawad Razaqzada said.

‘This could have repercussions on many other companies. So, the contagion risks may be much wider than the markets currently expect,’ he added.

Evergrande, one of China’s biggest developers, is on the brink of collapse as it wallows in debts of more than $300 billion.

Mining shares were hard hit because of the potential economic impact on China, which has a voracious appetite for raw materials.

‘Any downturn in China would have significant implications for commodities demand given its status as the world’s largest consumer of many minerals and metals,’ said AJ Bell analyst Russ Mould. 

Anxiety is also running high over spiking wholesale gas costs, fuelling global inflationary pressures and sparking concern from the world’s biggest central banks.

Against this backdrop, the Federal Reserve’s monetary policy meeting this week will be particularly important, according to analyst Neil Wilson.

A woman walks past a bank’s electronic board showing the Hong Kong share index at Hong Kong Stock Exchange in Hong Kong Monday

‘Does a Chinese property collapse and energy crisis collide with expectations for a Fed rate hike next year and biting inflationary pressures?’ he wrote in a note to clients.

‘That would be a pretty nasty cocktail for risk appetite and I think these are the risks being priced into today’s selling.’

Back in Hong Kong, property companies and banks bore the brunt of heavy selling.

Evergrande stock briefly plunged almost 19 percent before ending down 10 percent, sparking similar losses for Henderson Land and New World Development.

The Hang Seng Property Index meanwhile dropped more than six percent, its worst performance since May 2020.

The selling was mirrored elsewhere in Asia, although Tokyo, Shanghai, Seoul and Taipei were closed for holidays.

Despite the growing crisis, the Chinese government has yet to step in to prevent Evergrande from going under.

In addition, a new Delta outbreak in China has raised fear about the effect on the recovery in the world’s number two economy, which remains a key driver of global growth.

And in the US, eyes are on Congress as a political battle looms over lifting the federal debt ceiling.

Treasury Secretary Janet Yellen recalled in an article for the Wall Street Journal how in 2011 ‘debt-limit brinkmanship pushed America to the edge of crisis’, saying a Washington default would ‘likely precipitate a historic financial crisis’.

Once a symbol of its might, Evergrande’s Shenzhen headquarters is now a besieged barometer of the wide swathe of potential collateral damage, with investors, suppliers and other partners holding daily vigil.

A ticker board outside the Hong Kong Stock Exchange shows the market crashing on Monday

Cleaner Wang Demei, 40, slept outside on a piece of cardboard, seeking unpaid salaries for 70 people who she helped arrange to provide cleaning services to Evergrande.

She borrowed money from loan sharks to pay some staff, but said: ‘We can’t repay these (loans).’

The sales consultant meanwhile said hundreds more financial managers could lose their careers if Evergrande fails to solve its debt repayment problem.

‘Our personal credibility has collapsed,’ she added.

Small businesses across the country also said they have been forced to let workers go, scale down or close entirely due to financial stress.

But many people remember Evergrande differently.

‘Its original aim was to help allow us working families afford an apartment,’ a retired teacher surnamed Liu said.

Since 1997, she and her husband have lived in the very first residential compound Evergrande built – in Guangzhou city where the firm started out.

‘Evergrande is not a terrible company… It is one that has looked after us,’ she said. 

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