Evergrande: Central bank gives the all-clear for China's economy - other real estate companies with problems

The central bank in Beijing considers the risks to China's economy posed by the crisis surrounding real estate company Evergrande to be "manageable".

Banks are supposed to guarantee other companies a stable supply of credit.

Beijing / Munich - After weeks of excitement about the completely indebted real estate developer Evergrande, China's central bank has officially commented on the crisis for the first time. The risk of contagion is "manageable" for the Chinese economy, said central bank spokesman Zou Lan on Friday. It is unlikely that the Evergrande crisis will spread to other areas, Zou said at a press conference. However, the central bank called on the country's banks to ensure a stable supply of credit to the country's real estate companies.

Evergrande was "very poorly managed" and expanded "blindly", criticized Zou.

Evergrande had accumulated a mountain of debt of around 260 billion euros through an aggressive expansion financed on credit over the past few years.

It expanded into a number of industries: tourism, insurance, healthcare, and even electric cars.

The company spent billions on all of this.

However, there are indications that the crisis is now also spreading across the industry: In the past few days, two other real estate developers had admitted serious problems: Fantasia did not repay debts due, Sinic warned of the default.

Central bank representative Zou assured on Friday that the Chinese real estate sector is "generally healthy".

China: Evergrande cannot service debts or interest

The company is therefore currently neither in a position to fully service its due dates, nor to hand over finished apartments to the buyers. Zou said the authorities would "urge Evergrande to step up its efforts to sell parts of the business and speed up the handover of construction sites." To this end, even municipalities across the country are instructed to finish building Evergrande high-rise estates that have been started, according to informed circles in Beijing. In this way, people who have already paid for apartments should also receive them.

The Chinese government had not yet commented on the real estate developer's difficulties. Experts speculated that Beijing could order a break-up of the group. In the morning, the Bloomberg news agency, citing insiders, reported that the government in Beijing had facilitated the granting of real estate loans in order to keep the risk of the Evergrande crisis spilling over into the financial markets. Accordingly, the financial regulator ordered some major banks last month to accelerate lending for real estate loans.

The real estate industry in China has long been the engine of economic growth.

Millions of apartments have been built in the past few years, prices have only seen one trend: steeply upwards.

For most Chinese, buying a home is a very important step up the social ladder.

In return, they accepted the high prices as well as the requirement to pay for apartments well in advance of their completion.

China: The real estate boom led to high debts for many companies

Despite these prepayments, numerous real estate developers got heavily into debt in order to participate in the hot real estate business faster and faster. The rising prices also led to widespread real estate speculation. For many years, experts have been warning of a bubble that never burst. But the government began to slow down development in the summer of 2020 in order to deflate the bladder in a controlled manner. She gave the real estate companies the so-called "three red lines". These put limits on companies' borrowing and forced them to reduce their liabilities. Thus began the difficulties for Evergrande, which could no longer have fresh capital to service interest and debts.

Evergrande stock trading on the Hong Kong Stock Exchange has been suspended since October 4th.

Meanwhile, there is speculation about bailout measures such as the entry of another large Chinese corporation.

There have recently been several delays in interest payments on Evergrande bonds.

Tens of thousands of small investors fear for their money.