The Magazine for Asian Investors
When China stumbles, the world falters, as everyone has noticed since the beginning of the COVID pandemic. Supply chains were interrupted and important medicines and hospital equipment could not be delivered. It rules through the complete world the big chaos. What has also become apparent during the COVID pandemic is the vulnerability of the once showcase sector, the real estate sector. With the real estate giants like Evergrande or Kaisa obviously running Ponzi schemes in tightly controlled China, seems like a farce that this went unnoticed for so long.
Now, officials in China can not let the disaster run, because if it comes to the fall of the giants, there could be unrest among the population, which, in turn, is still waiting for the completion of many apartments.
In fact, the real estate market is one of the main pillars in China, accounting for almost 30% of the total Chinese economic output. Behind the industry are other giants such as the cement industry or the steel industry. This could indeed have far-reaching consequences. The ones who are already feeling the consequences are the shareholders and stakeholders in the companies. Investors who have invested in Evergrande or Kaisa, for example, may no longer expect profits from the companies, as the shares of the two companies listed on the Hong Kong stock exchange lost almost 90% of their value last year. Immense losses are therefore on the side of investors who have probably learned one thing above all, and that is that you can not even rely on large flagship companies.
On a global scale, analysts do not yet see a major impact, as financial giants such as Blackrock or the Citi Group are involved in the Chinese real estate market, but not far-reaching enough.
Now the real estate giants lack money to repay the debts. In the case of Evergrande, a total of $450 billion is missing.
Although analysts expect that the world will not be shaken by the Chinese real estate crisis, one should also keep in mind that analysts are also often wrong. The example of the COVID pandemic showed the impact an economic downturn in China can have. Therefore, because of the importance of the real estate market in China, one should not underestimate the impact. Especially when you think of the industries worldwide that are tied to the Chinese real estate industry and economy.