Evergrande, originally known as the Hengda Group, was founded in 1996 in Guangzhou, China, by Hui Ka Yan. Before its financial troubles, the company managed around 1,300 active projects across 280 cities in China and operated in various sectors, including real estate, wealth management, and electric vehicle manufacturing. Additionally, it held a significant investment in Guangzhou FC, a leading football team in the country. Hui was once regarded as Asia’s wealthiest individual, with an estimated fortune of $42.5 billion, but this figure declined sharply as the company’s difficulties escalated.
Evergrande’s troubles stemmed from its aggressive expansion, during which it accumulated over $300 billion in debt. In 2020, new regulations by the Chinese government aimed at limiting the leverage of large property developers strained the company further. To generate funds, Evergrande sold properties at steep discounts, which hampered its ability to meet debt obligations. Consequently, the company’s stock value plummeted by over 99%, and in August 2023, it filed for bankruptcy protection in New York as part of a larger strategy to resolve debts with creditors.
The ongoing issues facing Evergrande have implications for the broader Chinese economy, as the real estate sector represents approximately one-third of the nation’s GDP. The crisis has adversely affected not only real estate developers but also related industries such as construction and finance, which are pivotal to employment in China. Many families have invested their savings in property, deepening the impact on ordinary citizens.
While the Chinese government has implemented several measures to stabilize the economy, including low-interest loans to state banks and support for homebuyers, it has refrained from issuing direct bailouts to developers like Evergrande. This decision reflects a shift in economic priorities under President Xi Jinping, who is now emphasizing high-tech manufacturing and innovation over traditional real estate growth.
Source: https://www.bbc.com/news/articles/cvgn39d878ro?at_medium=RSS&at_campaign=rss