Washington/Beijing: – The US Federal Reserve has warned that the Chinese Real Estate Crisis can increase the stress on the Chinese economy and will hit the global economy, including the United States. The Federal Reserve warned that although the Chinese agencies have initiated measures, the deepening of the crisis remains heavy. Besides, a few US think tanks and financial institutions have compared the real estate crisis in China to the US home loan crisis. Moreover, they have expressed fears of a recession.
Over the last year, the shares of Evergrande, the leading property and construction company in China, have crashed by more than 80%. The company has a debt burden of a whopping $305 billion. Besides, as per the claims, the company is in no position to repay the debt. The company has already defaulted on repaying three of its loans. Following Evergrande, there is a possibility of the loans of Fantasia, Scenic Holdings and Modern Land also turning bad. The company, Kaisa Group Holdings, has asked for an extension from the borrowers to repay the loans and the credit rating agencies have degraded the company.
Against this background, the warning issued by the US Federal Reserve becomes noteworthy. The Federal Reserve has said, ‘Given the size of China’s economy and financial system as well as its extensive trade linkages with the rest of the world, financial stresses in China could strain global financial markets through a deterioration of risk sentiment, pose risks to global economic growth, and affect the United States.’
The real estate and related sectors have a share of nearly 30% of the Chinese economy. On the other hand, the biggest non-performing loans disbursed by Chinese banks are also in the same sector. In 2021, the Chinese companies’ default repayment of capital and interest is nearly $9 billion and 34% of this is from the real estate sector. Against this background, the international financial institutions have started curtailing the credit ratings of these companies from the Chinese real estate sector. At the same time, the international financial institutions and analysts have begun issuing warnings regarding the impending crisis.
British analysts have warned that if the Evergrande goes bankrupt, there will be an anarchical situation in the bonds market. The US website ‘The Street’ claimed that the Evergrande crisis will prove to be the ‘Lehman Moment’ (the global economic crisis in the United States, which impacted the globe in 2008). Whereas, US investor and analyst Jim Chanos had expressed a fear that the Evergrande crisis could deliver a bigger jolt than the Lehman Brothers crisis.
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