Why the Evergrande collapse did not happen – Sara Hsu

 

Sara Hsu

Almost half a year ago the real estate giant Evergrande started to fall apart under its 300 billion US dollar debts, but the collapse – expected by many – has not yet emerged. Financial analyst Sara Hsu explains in the Commercial Observer why this collapse has not happened.

The Commercial Observer:

“The real estate market in China represents China’s main means of savings since the financial system remains underdeveloped relative to that of developed nations. Therefore, the government has a significant interest in reducing the impact of real estate downturns,” said Sara Hsu, clinical associate professor of supply chain management at the University of Tennessee at Knoxville. Hsu has written for over 30 publications on the Chinese economy. “This means that there will likely be policies put in place to reduce price volatility in the housing sector.”

China’s economic growth for 2022 is now pegged at 4.8 percent, 0.8 percentage points lower than previously expected and a marked slowdown from the 8.1 percent growth achieved in 2021, the country’s central bank announced recently. Judging from the numbers, China’s economy is experiencing lagging growth, but an anticipated financial market crisis hasn’t materialized…

“Overseas investors are angry but the amount of Evergrande’s debt borrowed from overseas investors is far less than that borrowed onshore, so the fallout will not be extensive,” she said.

Maybe the question is not whether an exploding debt bomb at a Chinese company will spread financial shrapnel abroad, but whether a similar risk lies in other economies. Is there some version of Evergrande lurking in the U.S.?

The same situation is less likely to occur in the U.S. since banks tend to lend based on close examination of credit risk. In contrast, Chinese banks still lend to some extent based on government policy direction, which in recent years has included property and infrastructure construction, according to Hsu.

More in the Commercial Observer.

Sara Hsu is a speaker at the China Speakers Bureau. Do you need her at your (online) meeting or conference? Do get in touch or fill in our speakers’ request form.

Are you looking for more financial experts at the China Speakers Bureau? Do check out this list.