Urgent Action Needed: China Evergrande Group Crisis Threatens Global Economy

The administration of Chinese President Xi Jinping is under increasing pressure to urgently implement decisive measures to address the deepening crisis of the ailing real estate giant, China Evergrande Group. Concerns are mounting that any further delay could not only severely impact the domestic economy but also have ramifications for the global economy.

The situation escalated on December 4 when the Hong Kong High Court held a hearing to decide whether to approve the legal liquidation filed by Evergrande’s creditors. However, the court deferred its decision until January 29 of the following year, despite the judge’s earlier statement in October that it would be the final postponement.

While creditors sought the delay to discuss a new debt restructuring plan, the decision is perplexing given the prolonged nature of the crisis, which first emerged in the summer of 2021. Over two years later, little progress has been made in restructuring Evergrande’s massive debt, and the prospect of management rehabilitation seems increasingly elusive.

As of the end of June, Evergrande’s total debt reached around 2.4 trillion yuan ($335 billion), and the company holds a negative net worth of over 640 billion yuan, signaling a de facto bankruptcy scenario.

The reluctance of the Chinese government to take fundamental steps, including legal liquidation, stems from the potential widespread impact on clients, including individuals who have paid for homes but not received delivery. This reluctance is driven by the fear of triggering social unrest.

Despite the containment of COVID-19, China’s economy continues to grapple with sluggishness due to a lack of demand resulting from the property recession. In response, the Chinese government initiated a 1 trillion yuan increase in government bond issues in October, launching a comprehensive fiscal stimulus package. However, economists argue that this measure is insufficient to address the demand shortage.

The real estate sector, constituting approximately 30% of China’s gross domestic product, including related industries, remains a critical driver of economic activity. Analysts warn that without resolution to the management issues plaguing major property developers like Evergrande and Country Garden Holdings, a robust economic recovery remains unlikely.

Calls are growing for the consideration of injecting public funds if necessary, emphasizing the urgency of taking prompt action. With the potential global implications of Evergrande’s crisis, the need for immediate and effective solutions is underscored, and there is little time to spare. The eyes of the international community are closely watching how the Chinese government will navigate the challenges posed by the Evergrande debacle.