Evergrande’s debts surpassed $ 300 billion, and its value on the stock market had fallen.Banks and financial institutions around the world could experience vital losses due to a possible default.
International media reported that the real estate and construction company Evergrande Group, one of the two big companies in China, could go into default in the coming days.
There is uncertainty among analysts on the measures the State would take regarding a possible bailout. This bailout would cause consequences for the national and global economy.
According to Reuters news agency reports, the most relevant banks in China got notified that Evergrande would not meet the commitments of loan payments on September 20, 2021.
The Asian company would be facing a liquidity crisis that could leave an impact only comparable to that of other major global outbreaks, such as the one in 2008.
Reuters also reported that Evergrande is negotiating with financial institutions an extension of the term. It would also renew the loans; the problem is that other creditors and investors also claim their payments from the company. The same happens with suppliers. There is fear in the air.
The Impact the Evergrande Could have on China
Although Reuters has not confirmed that a default would happen, one of the theories that experts point out regarding the complications is that the Chinese government offers a financial rescue.
In this sense, regulators warn about the consequences that non-compliance with the firm’s obligations, which add up to USD 305,000 million, could have for the country’s financial infrastructure.
On the other hand, the analyst Cochran highlights that the massive sale of properties by the real estate to solve its debts will cause its shares to crumble down even more, as they have been doing recently.
This collapse of the Chinese company could run in parallel to Lehman Brothers’ failure in 2008. At that time, the total amount of assets that got dissolved was $ 600 billion; Evergrande owns $ 200,000 in shares and another $ 300 billion in debt. This sum adds up to $ 500 billion in total.
There have been no official announcements from the company or the Chinese government. On the other hand, financial rating agency S&P downgraded Evergrande to CCC, indicating that it is a “high risk” company. The reasons rely on its reduced liquidity and the risks of default.
The Role of Bitcoin during an Alleged Crisis in China
This possible default could occur, and the Chinese government would decide the rescue of Evergrande to avoid a financial crisis. One of the immediate procedures would be the printing of more fiat money. In this way, an injection of liquidity would help the institutions and the population in general.
However, this situation would also lead to higher inflation. Even the US dollar has lost its purchasing power, and it is here that the first cryptocurrency emerges as an option that has appreciated in recent years.
By: Jenson Nuñez
