What’s going on? China stays quiet as Evergrande chaos threatens to sink economy

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While Xi Jinping is yet to comment on the uncertainty surrounding the market, one of its largest companies, China Evergrande, faces the potential of defaulting on its vast debt payments. Not only does the company face the prospect of defaulting on its $305billion (£221billion) but it is yet to complete 1.6 million projects across the country. The country’s second-largest property developer also reported a 97 percent drop in its sales in comparison to a year ago.

Despite the chaos surrounding the company, Evergrande told employers on its WeChat page: “All employees of the group swear to ensure the construction of the project with the greatest determination and strength, and complete the delivery of the real estate with the highest quality and quantity.”

While the company has attempted to stay out of the headlines and attempt to rescue its dire financial situation, employees have now begun to suffer from its economic difficulties.

Michael Yang, an Evergrande salesperson in the southern city of Chongqing, revealed his pay has been decimated due to the current situation.

Speaking to the New York Times, he said his salary has been cut from $3,900 (£2,876) a month to $280 (£206).

He has also begun a year of an enforced sabbatical by the company from the beginning of this month.

He told the publication: “It’s not enough for me in Chongqing, for sure.

“It suddenly disrupted my life plan.

“I didn’t expect it to come so quickly.”

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The company has faced several deadlines over bond repayments over the last few months.

The latest looms on Wednesday when the grace period for $150million (£110million) in bond repayments is set to end.

On Saturday, Scenery Journey Ltd, a company under the umbrella of the Evergrande Group, failed to pay semi-annual coupon payments.

According to sources, the payments amounted to $82.49million (£60million) on its November 2022 and November 2023 dollar bonds.

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It has faced several other deadlines before managing to pay off debts at the last minute.

While it has managed to survive so far, experts claim the company will default on its payments.

Matthew Chow, a China property analyst and director at S&P Global Ratings said: “The fundamental situation for Evergrande hasn’t really changed.

“We remain sure that default is almost a certainty.”

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If the company were to default on its payment, it would have serious consequences for China’s economy as the property market accounts for 29 percent of the country’s GDP.

China’s property market is valued at $55trillion (£40trillion) in some estimates which is four times larger than the country’s GDP.

If Evergrande were to go into financial ruin and spark the collapse of the housing market, it is thought it could wipe $1trillion (£737billion) off the world’s growth rate.

USB economists Tao Wang and Arend Kapteyn said: “The main channel of contagion of China’s property downturn is likely through trade, especially imports of commodities, as demand for construction materials, machinery, appliances and automobiles drops.

“Economies most exposed to China’s domestic demand are commodity producers including Chile, Australia and Brazil, and Asian economies including Vietnam, Malaysia, Taiwan and Korea.”

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