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Chinese housing giant unable to pay debts and could wreck global economy


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In the years since the Global Financial Crisis (GFC), the issues within China's financial system and property market have become increasingly apparent.

From the infamous ghost cities to the estimated 80 million homes that sit completely empty, the writing has been on the wall detailing the risks for years. Yet, despite predictions that it would all come crashing down in one spectacular heap, the Chinese property sector has not only survived but evolved into an even greater driver of China's economic growth.

But behind this apparent success story lurks a far more complex and challenging reality. For years whenever a large property developer or construction company got into a level of trouble that threatened systemic stability, Beijing would generally step in and bail them out in one way or another.

Given the level of control the Chinese government wields over the financial system and the corporate world in China, these bailouts and de facto rescues have taken on many different forms over the years.

But each time the core of the issue was maintaining the strong economic growth that Beijing has become reliant upon and protecting the wealth of existing property holders.

With Chinese households holding more than 60 per cent of their wealth in the form of property, allowing prices to fall and the construction sector to be impacted by rising bad debts was a bitter pill for Beijing to swallow.

As President Xi Jinping's push to prepare China for a global black swan event continues, it's becoming increasingly clear that Beijing may no longer have the will to step in so overtly.

To put Evergrande's immense size and importance to the Chinese economy into perspective, its debts amount to around $447 billion (US$315b).

That is more than three times the entire debt load of the New Zealand Government and around two-thirds of all outstanding Australian federal debt.

As Evergrande struggles to pay its creditors, mum and dad investors have stormed the company's headquarters to demand their money back, after payments to retail investors were stopped.

Evergrande is not the only Chinese property developer in major distress. Across a long list of China's biggest property developers, a significant number are in similar financial trouble, with their collective debts in a distressed state exceeding more than $710b (US$500b).....

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