The situation in the Chinese construction sector, which contributes around 17% of the GDP of the second world power, is delicate
Evergrande was the first to give a scare, but it is not the only real estate developer in China facing financial difficulties. Last week, shortly after the three major rating agencies devalued its note, Fantasia was unable to meet the interest on its $ 206 million debt. And today it has been another brick giant, Sinic, who has recognized that it does not have the 250 million dollars that it should pay to its investors on the next day 18. In addition, as the company has announced to the Hong Kong stock exchange, in which It stopped trading on the 20th after losing 87% of its value, the default could affect other bonds that add almost 700 million dollars more in interest that mature this year.
Undoubtedly, the situation in the Chinese construction sector, which contributes around 17% of the GDP of the second world power, is delicate. So much so that, according to Bloomberg, two other promoters – Modern Land and Xinyuan – have asked for the deferral of payments and an exchange of bonds to meet the interest without turning their back on their obligations. For all these reasons, the China Real Estate Association has called its associates to an extraordinary meeting this Friday to analyze the risks and take measures to prevent the dreaded domino effect from materializing.
Part of the problems stem from the drop in sales after the ‘boom’ experienced between 2016 and 2018, which has been influenced by policies against speculation and the tightening of access to credit, as well as the excessive diversification that has left the coffers of some companies. Evergrande, for example, is plugging some holes by selling divisions like electric vehicles. But, for the moment, the Government has decided not to intervene. Although it has announced that the interests of the owners who are waiting to receive their homes, and who have staged demonstrations in different cities of the country, will always prevail, firms such as Morgan Stanley are betting that it will choose to relax the current restrictions to stabilize the market. For its part, the International Monetary Fund has affirmed that China has the capacity to solve the crisis.