Evergrande, one of China’s largest real estate developers, has collapsed, leading to the arrest of Xu Jiayin, the company’s executive director and chairman of the board of directors. This shocking development has sent shockwaves through the financial community and raised concerns about the stability of the Chinese real estate market.
On September 28, Evergrande issued a statement on the Hong Kong Stock Exchange, revealing that Xu Jiayin had been subjected to compulsory measures due to suspected illegal activities. As a result, the company’s shares were suspended from trading and the future of the Evergrande empire appears uncertain.
This collapse comes after months of mounting debt and financial turmoil for Evergrande. Since the debt crisis began in September 2021, the company’s debt obligations have grown exponentially, leading to a sharp decline in overall sales. It has also raised concerns about a systemic crisis, as other real estate giants such as Sunac Era and Country Garden have also faced liquidity difficulties.
The real estate sector in China has been grappling with structural adjustments and slowing economic growth, creating a challenging environment for developers. The relationship between supply and demand has undergone significant changes, and the government has implemented measures to address the situation. These measures include “recognizing houses but not loans” and reducing down payments and loans to stimulate demand and confidence in the real estate market.
In a recent discussion at the “Phoenix Bay Area Financial Forum 2023,” economists shed light on the challenges facing the Chinese real estate market. Hong Hao, chief economist of Sirui Group, highlighted real estate as the biggest gray rhino for the Chinese economy. He warned that a sharp decline in real estate prices would have severe consequences on banks’ balance sheets and their ability to lend.
However, Michelle Walker, the author of “Gray Rhino,” offered a different perspective. She believes that the cooling of China’s real estate market is a deliberate policy decision aimed at preventing a Minsky moment. The Minsky Moment refers to a situation where vulnerabilities in the financial system accumulate, and without necessary reforms, an economic collapse becomes inevitable.
Walker emphasized the importance of timely policy changes to deflate the real estate bubble and avoid more severe consequences in the future. She warned that failure to act promptly would result in a much more painful situation.
As the news of Evergrande’s collapse and Xu Jiayin’s arrest spreads, the financial community is issuing warnings to investors. The content, data, and tools in this article are not investment advice and should be used for reference only. It serves as a reminder of the risks involved in the stock market, urging caution when making investment decisions.
The collapse of Evergrande and the challenges facing the Chinese real estate market have far-reaching implications. There is growing uncertainty about the stability of the real estate sector and the potential impact on the overall economy. As developments unfold, investors and experts alike will closely monitor the situation to assess the long-term ramifications and potential paths to recovery.