The Threat of the World Crisis? How the default of the giant Evergrande will affect Ukraine

For several weeks now, the attention of the world community has been riveted on China and the situation that is bringing the country closer to a powerful economic crisis.

The giant Chinese developer Evergrande, which owns 1.3 thousand real estate projects in the country, is on the verge of default.

Some experts believe that the fall of Evergrande could not only threaten China, but also cause the global financial crisis, repeating the scenario of the American bank Lehman Brothers in 2008.

Financial giant Evergrande

Evergrande is a giant Chinese investment holding that is primarily engaged in real estate construction, as well as health insurance, internet services, electric cars and other goods.

Evergrande was founded in 1996 and now employs about 200 thousand employees, and Evergrande is building its houses in 280 Chinese cities.

In addition, Evergrande owns 60% of Guangzhou Football Club.

The holding has constantly expanded its sphere of influence and increased its financial strength, and at the moment, Evergrande’s debt exceeds $ 305 billion.

Why did things start to decline?

First, the so-called coronavirus crisis of 2020 hit the company. The pandemic has slowed the growth of the Chinese economy as a whole, not bypassing Evergrande.

At the same time, the Chinese authorities began to fight speculation, which significantly hampered the functioning of the holding.

The government tried to bring down housing prices and somewhat cool the real estate sector by limiting the access of developers to loans and potential buyers to mortgages.

Investment analyst Sergey Fursa believes that Evergrande’s approach to default is a deliberate policy of the Chinese communist government.

“The Chinese Communist Party decided that this developer should go bankrupt, and this generally fits into the overall strategy of the Chinese government,” the expert says.

According to Fursa, the Chinese authorities are concerned about the rise in inequality in the country, which is a result of super-fast economic growth.

“Inequality threatens the state itself, so they decided to fight it. One of the key manifestations of inequality is that someone owns assets, and their value is so high that other people will never be able to get them.”

According to Sergei Fursa, the Chinese authorities believe that Evergrande is working in the interests of speculators.

Over the past year, the rating agency Fitch has downgraded this developer three times. Now he has slipped from B + to the level of CC, which is a marker of a difficult financial situation.

Should you be afraid of the domino effect?

In 2008, the sudden collapse of the American bank Lehman Brothers led to a domino effect on the world’s financial markets.

According to President of the Ukrainian Analytical Center Oleksandr Okhrimenko, the problems that currently exist in China cannot significantly affect the global economy. But they can slow down the pace of construction and development of the real estate sector within the country.

“We need to clearly distinguish that the 2008 crisis in the US was associated with the fact that too many derivatives, mortgage-backed securities were issued, which led to the fall of Lehman Brothers, which was the main player in this market.”

China has a different model of the economy, where a lot of housing is being built at the expense of the state budget, and the government really had a policy – to build whole new cities in the hope that people from megacities would move there. But it didn’t work, and that’s why there are now problems, the analyst says.

According to Sergei Fursa, the “domino effect” cannot be ruled out, but this is not a basic scenario, and the situation is not as threatening as it seems. Because, according to the investment analyst, the government itself leads the company to default and the situation is controllable.

However, according to Sergei Fursa, no one ruled out surprises.

Why is everyone in anticipation of a large-scale crisis?

On Monday, September 20, the Hang Seng Index of the Hong Kong Stock Exchange fell 3.5%, as investors began to quickly sell shares in real estate companies after a lot of negative outlooks.

Evergrande collapsed eight times, some small companies lost more than 80% of their capitalization.

Some experts believe that against the background of the collapse on the Chinese stock exchange, the cryptocurrency also fell: bitcoin dropped in price by 7.3% per day.

However, Alexander Okhrimenko thinks differently and assures that this cryptocurrency is not related to the Chinese economy.

Can Ukraine catch on?

If it is too early to talk about the global crisis, then there may still be certain consequences for us.

Ukraine is connected with the PRC by trade ties, and China is a fairly active buyer of metal and iron ore.

“If the volume of construction in China slows down greatly, then the demand for metal in the world will decrease, and this is really bad for us,” says Oleksandr Okhrimenko.

The expert notes that such a decrease in demand may lead to a decrease in the export of these materials.

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