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Evergrande is a big Chinese business that develops large buildings, such as offices, homes and hotels.
News reports note Evergrande owns more than 1,300 buildings in 280 cities. The company also has investments in an electric vehicle company, a media company, a soccer team, a food company and other things.
Evergrande borrowed money from banks and governments. It also sold investment products to average people to raise money for its projects. Evergrande agreed to pay interest on its debt.
However, Evergrande recently sent letters to some governments and large investors saying it might not be able to pay back some loans on time. The Reuters news agency reports that Evergrande owes about $305 billion.
This news made many banks and investors worry because if Evergrande could not pay, they could not make payments on their own debts.
When the news came out that Evergrande was uncertain it could meet payment deadlines, stock markets around the world went down, which shows how the financial problems of one very large company in China can cause problems around the world.
The company’s debt problem not only affects large banks and investors. It also affects regular people throughout China.
A worker named Li Hongjun in the Chinese city of Suzhou is worried he will soon run out of food. That is because Li is working in a building owned by Evergrande and has not been paid since August. He said he will soon have to ask the government for help so he can buy food.
Another person, Christina Xie, works in Shenzhen. She said she invested all her savings, nearly $60,000, into a fund, or investment, run by Evergrande. These funds are known as Wealth Management Products, or WMPs. She was promised a payment of about $4,600 earlier in September. It did not arrive.
She said her investment was supposed to pay 7.5 percent interest per year. Xie planned to use the money to retire.
“Now, it’s game over,” she said, adding that an investment manager promised the payments were guaranteed.
People throughout China recently joined protests related to Evergrande’s financial problems. They are angry that Evergrande was allowed to build so much debt without the Chinese government setting limits.
Some people who purchased homes in Evergrande buildings are still waiting to take ownership. One woman, who did not want to give her name, said she has been waiting since April 2020.
She said she is paying about $465 per month for a home she does not occupy.
Research from financial experts at Capital Economics show Evergrande took in about $202 billion in payments from home buyers, but the company has not delivered 1.4 million promised homes and buildings.
In addition, there are about 80,000 people like Xie who put money into Evergrande WMPs, about $15 billion over the last five years. They are worried about getting their money back.
I’m Dan Friedell.
Dan Friedell adapted this story for Learning English based on reports by Reuters. Susan Shand was the editor.
Do you have an investment in an Evergrande product or building? Do you think you will get paid back? Tell us in the Comments Section and visit our Facebook page.
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Words in This Story
fund –n. an amount of money that is used for a special purpose
deadline –n. a date or time when something must be finished : the last day, hour, or minute that something will be accepted
The article discusses the financial woes of Evergrande, a major Chinese real estate developer facing significant debt issues that have sent shockwaves across global markets. As an expert in finance and economics, I can dive into the concepts mentioned and offer insights:
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Evergrande's Business Operations: Evergrande is primarily involved in real estate development, owning over 1,300 buildings in 280 cities, including offices, homes, and hotels. They've expanded into diverse sectors like electric vehicles, media, soccer, and food businesses.
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Debt Accumulation and Financing Methods: Evergrande heavily relied on borrowing from banks, governments, and issuing investment products (like Wealth Management Products - WMPs) to raise funds for its projects. These investments promised returns to investors, but the company faces challenges in meeting these obligations.
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Debt Crisis Impact: The company's inability to repay loans and honor investment commitments has not only rattled investors and banks but has also affected ordinary citizens. Workers like Li Hongjun have faced unpaid wages, leading to severe personal financial distress, while investors like Christina Xie, who entrusted their savings to Evergrande's WMPs, fear losing their investments and retirement plans.
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Global Financial Ramifications: Evergrande's massive debt issues have reverberated globally, triggering stock market declines worldwide. This illustrates the interconnectedness of financial markets and how problems in one major company can have widespread implications.
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Consumer Concerns and Unfulfilled Promises: Homebuyers waiting for ownership and facing continued payments for properties they don't occupy highlight Evergrande's unfulfilled commitments. Reports indicate around 1.4 million undelivered promised homes despite collecting payments, affecting numerous individuals.
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Regulatory and Government Oversight: Concerns have been raised about the lack of government regulations and oversight allowing Evergrande to accumulate such extensive debt without adequate limits, leading to public outrage and protests.
The article touches upon crucial financial concepts such as debt, investments, financial mismanagement, regulatory oversight, and their societal implications. Evergrande's case serves as a stark reminder of the risks associated with excessive leveraging, mismanagement, and the cascading impact on various stakeholders within and beyond the financial sphere.
