Evergrande and China’s Property Bubble

CHINA ADVISORY - Report 11 Dec 2020 by Andrew Collier

Rising debt at one of China’s largest developers, Evergrande, has led to concerns that China’s property market may be on the verge of collapse. Evergrande has approximately US$120 billion in debt and may have trouble raising financing. The issue, though, is not just the cash position of Evergrande and other developers, but the fiscal demands of local governments that increases pressure on them to maintain steady or rising land prices. Thus, the fiscal situation of China’s local governments, and the regulatory pressure and support of the central government, are fundamental to the health of the property sector. However, the data on local government revenue, although weak, is not in dire straits, and the macro data for China’s economy is showing strength. This explains why Beijing is willing to let some state corporate borrowers default and is restraining credit growth, particularly to property developers.

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