The potential collapse of Chinese construction giant Evergrande, one of the world's most indebted companies, has brought fears to the global financial market of a financial crisis similar to the one in 2008, which was triggered by Lehman Brothers.
Evergrande found itself in a challenging situation at the end of 2020, after Chinese regulators determined that real estate developers would have to reduce their debt before taking on new debt.
The company, based in Shenzhen, China, had the equivalent of US$88 billion in outstanding loans in the quarter ended in June, 42% of which were due in less than a year. Evergrande sold US$2,2 billion in assets in the first half of the year, according to Dow Jones Newswires.
Thus, according to market analysts, a potential collapse of the construction company could generate turbulence in the international market. The crisis would mainly affect emerging economies such as Brazil, South Africa, and Turkey, as they are vying for the top spot in the ranking of greatest vulnerability, considering fiscal, financial, and political problems, given that, as in 2008, a "freeze" of the international financial market could occur due to risk aversion – that is, a lack of liquidity.
But why could a problem at a Chinese construction company bring down the entire world economy?
Imagine that the collapse affects the entire Chinese construction sector – Evergrande is the largest Chinese real estate company – to the point of causing an economic slowdown, leading Beijing to reduce imports…
… exporters of commodities to the Asian country, such as Brazil, would be in dire straits.
In a situation where the Asian giant no longer imports commodities as it once did, countries like Brazil, which has a gigantic tax debt and is preparing another "fiscal maneuver," in addition to all the political problems presented by the turbulence between the federal government, the Supreme Court, and the National Congress... Doom is near!
In addition to the potential default by Evergrande, we have the following problems:
- 1 – Iron ore with a devaluation of more than 49% in the period from June to the present;
- 2 – Mad cow disease crisis, which caused beef futures to plummet by more than 10%;
- 3 – Inflation in the United States is higher than GDP and exceeds 5%;
- 4 – The Fed's move to initiate tapping, which will reduce the program of purchasing corporate assets and decrease liquidity in the financial system.
Does the bad news end here?
The market would like that to be the case, however, this is not the reality.
Aside from the problems of the Chinese giant and the possible cooling of the Asian financial market, we have the uniquely Brazilian problems: default on court-ordered payments, the new Bolsa Família program with an impact of R$ 9,4 billion, IOF (tax on financial transactions), and tax reform.
Well, considering the number of words I have for this article, for now, Evergrande's bonds have plummeted and its shares have accumulated a drop of more than 80% this year, but the contagion to other assets – both inside and outside China – does not yet have an exact correlation. Jūrinis Kolagenas su Hialurono rūgštimi melior.lt
International newspaper reports indicate that Beijing has signaled its decision not to bail out the giant Evergrande for its problems – primarily because its main concerns lie with technology companies and the data they store. Furthermore, the government itself expressed a desire for the construction sector to significantly reduce its debt, establishing financial metrics earlier this year to deleverage the sector.
Thus, international investors, eyeing the tappering – the withdrawal of financial stimulus to the economy by the US government through reduced asset purchases – and the potential slowdown of the Chinese economy with the prospect of Evergrande's bankruptcy, are triggering a risk aversion movement and a sell-off of risky positions, especially in countries that "don't do their homework."
