Evergrande Crisis - Highlighting the Fragility of China’s Real Estate Industry
Evergrande Crisis - Highlighting the Fragility of China’s Real Estate Industry
SUMMARY
Evergrande, China’s second largest property developer is currently on the brink of collapse, which has sent shockwaves through the finance and property sectors. Evergrande isn’t the only property firm grappling with huge debt and its position is indicative of deep-rooted issues facing the construction and real estate industries in China. This case study takes a look at how Evergrande found itself in crisis, and what potential outcomes lay ahead.
KEY HIGHLIGHTS
SUMMARY
Evergrande, China’s second largest property developer is currently on the brink of collapse, which has sent shockwaves through the finance and property sectors. Evergrande isn’t the only property firm grappling with huge debt and its position is indicative of deep-rooted issues facing the construction and real estate industries in China. This case study takes a look at how Evergrande found itself in crisis, and what potential outcomes lay ahead.
KEY HIGHLIGHTS
- Evergrande often was seen as a posterchild for the property boom in China, after rising to prominence during a period of mass urbanization and growing to become the country’s second largest developer. However, it has recently found itself in hot water after years of excessive borrowing, which could see it collapse in a worst-case scenario. This eventuality would have far reached implications on China and potentially, around the world.
- The real estate industry in China, which is closely linked to the residential construction industry, has faced issues historically. The country experienced a property bubble between 2005-2011 which saw average house prices surge, before the government stepped in to reduce the swell in prices. The real estate and construction industries are a key driver of the Chinese economy; therefore, their health is crucial in maintaining a stable economy within the country. In order to curb the industry's excessive debt and stave off another housing bubble the government introduced the three red line strategy in 2020, which was a key factor in exposing the issues facing Evergrande and the industry as a whole.
- The news of Evergrande’s potential default has sent shockwaves around the globe, with some fearing that its downfall could prompt another ‘Lehman Brother’s’ moment. However, there are also arguments that the country’s second largest property developer is simply too big to fail and that the Chinese government must nationalize and restructure the firm to protect those relying on the Evergrande, including suppliers, potential homeowners and the economy. Regardless of the way in which the Evergrande crisis play’s out, it is clear that the government must take further action to resolve the issues of debt laden property developers and stabilize the market.
- Understand the Evergrande crisis and its extent
- See how the industry has struggled and understand its major issues
- Learn how China has reacted and if the problem can be resolved
- What is the Evergrande crisis?
- How has the crisis come about?
- What does China intend to do about it?
1. OVERVIEW
1.1. Catalyst
1.2. Summary
2. EVERGRANDE HAS EXPERIENCED A FALL FROM GRACE
2.1. Evergrande is China’s second largest property developer
2.1.1. Evergrande has undertaken some of the country’s most ambitious projects
2.2. Excessive borrowing has placed Evergrande in hot water
2.2.1. Evergrande isn’t the only company struggling
3. CHINA’S CONSTRUCTION AND REAL ESTATE INDUSTRIES ARE WROUGHT WITH PROBLEMS
3.1. China experienced a property bubble between 2005-2011
3.2. China’s construction industry is of great importance to its economy as a whole
3.3. The three red line strategy aimed to resolve issues
4. POTENTIAL OUTCOMES ARE BLEAK AND WILL NOT SOLVE UNDERLYING ISSUES
4.1. There are arguments that Evergrande is too big to fail
4.2. If Evergrande isn’t saved, its downfall will drag down the Chinese/global economy
4.2.1. Suppliers may suffer from the ripple effect
4.2.2. Impact on potential homeowners would be huge if the company collapses
4.3. Property tax could offer a long-term solution to fundamental issues
5. APPENDIX
5.1. Abbreviations and acronyms
5.2. Sources
5.3. Further reading
6. ASK THE ANALYST
7. ABOUT MARKETLINE
1.1. Catalyst
1.2. Summary
2. EVERGRANDE HAS EXPERIENCED A FALL FROM GRACE
2.1. Evergrande is China’s second largest property developer
2.1.1. Evergrande has undertaken some of the country’s most ambitious projects
2.2. Excessive borrowing has placed Evergrande in hot water
2.2.1. Evergrande isn’t the only company struggling
3. CHINA’S CONSTRUCTION AND REAL ESTATE INDUSTRIES ARE WROUGHT WITH PROBLEMS
3.1. China experienced a property bubble between 2005-2011
3.2. China’s construction industry is of great importance to its economy as a whole
3.3. The three red line strategy aimed to resolve issues
4. POTENTIAL OUTCOMES ARE BLEAK AND WILL NOT SOLVE UNDERLYING ISSUES
4.1. There are arguments that Evergrande is too big to fail
4.2. If Evergrande isn’t saved, its downfall will drag down the Chinese/global economy
4.2.1. Suppliers may suffer from the ripple effect
4.2.2. Impact on potential homeowners would be huge if the company collapses
4.3. Property tax could offer a long-term solution to fundamental issues
5. APPENDIX
5.1. Abbreviations and acronyms
5.2. Sources
5.3. Further reading
6. ASK THE ANALYST
7. ABOUT MARKETLINE
LIST OF TABLES
Table 1: Color scheme illustrating limits on the extent to which Chinese real estate developers can grow annual debt
Table 1: Color scheme illustrating limits on the extent to which Chinese real estate developers can grow annual debt
LIST OF FIGURES
Figure 1: The Guangzhou Evergrande Stadium is a major infrastructure project
Figure 2: Evergrande Debt to Equity Ratio
Figure 3: Real estate prices have begun to surge once again
Figure 4: China, Residential Construction Output by Project Type (Real, USD Million), 2016-2025
Figure 5: Police keep watch outside the Evergrande headquarters in Shenzhen to prevent social unrest
Figure 1: The Guangzhou Evergrande Stadium is a major infrastructure project
Figure 2: Evergrande Debt to Equity Ratio
Figure 3: Real estate prices have begun to surge once again
Figure 4: China, Residential Construction Output by Project Type (Real, USD Million), 2016-2025
Figure 5: Police keep watch outside the Evergrande headquarters in Shenzhen to prevent social unrest
