New York
CNN
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Evergrande’s recent bankruptcy filing in the US serves as a cautionary tale about China’s growth-at-all-costs model, which fueled its remarkable economic expansion over the past three decades.
For years, Evergrande, formerly one of China’s most successful real estate developers, amassed significant debt as the country’s economy boomed. The demand for housing was so high that developers often sold apartment units to buyers before completing construction.
However, a sudden policy shift by China’s leaders two years ago created a financial crisis for property developers, exacerbating existing risks within the world’s second-largest economy.
The Downfall of Evergrande
Evergrande’s decline began in 2021 when the Chinese government implemented measures to limit excessive borrowing and curb rising home prices, which effectively cut off a major source of funding for property developers.
With $300 billion in liabilities, Evergrande failed to generate enough cash to meet its debt obligations, leading to default in December 2021 and triggering a market panic. This default set off a wave of defaults in the real estate sector, causing significant disruptions and leaving many buyers without completed homes and burdened with debt.
The future of Evergrande and its efforts to restructure its offshore debts have significant implications for China’s financial system.
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