12:18 JST, September 24, 2021
The management crisis at Chinese real estate giant Evergrande Group has caused a stir in global markets. The Chinese government needs to take appropriate measures to prevent the crisis from triggering a negative chain reaction.
Founded in 1996, Evergrande has grown rapidly by developing condominiums and selling them on a large scale while incurring huge debts. In addition, it has expanded into such businesses as mineral water and electric vehicles, and is also the parent company of a soccer club.
However, the company’s business performance has deteriorated, with excessive debts placing a heavy burden on it. As the business expansion policy has stalled, the company is having a severe cash flow problem.
The company’s total debts reportedly amount to about ¥33 trillion. If the company goes bankrupt, the impact on the Chinese economy would be enormous.
There is a risk that contractors that have undertaken the construction of condominium buildings will not be able to collect the money owed to them, leading to a chain of bankruptcies. The delivery of sold real estate properties is also expected to be delayed.
A large number of investors have reportedly been protesting at Evergrande’s headquarters in Shenzhen, Guangdong Province, which could lead to social unrest.
Economies worldwide, including Japan’s, would inevitably be hit hard if the world’s second-largest economy was shaken.

Unfinished residential buildings are pictured at the Evergrande Oasis, a housing complex developed by Evergrande Group, in Luoyang, China September 15, 2021.
Evergrande’s management crisis has sparked turmoil in the global stock market. On Sept. 20, stock prices dropped sharply in the United States and Europe, as well as the Hong Kong market where Evergrande is listed. On the Tokyo Stock Exchange, the Nikkei Stock Average also fell below 30,000 on Sept. 21 for the first time in two weeks.
Global stock prices have been at high levels, backed by excessive injections of money due to monetary easing. The risk of a sharp decline in stock prices due to some kind of a shock is growing.
Evergrande is said to be facing a series of due dates for interest payments on its corporate bonds. There are concerns that something unusual could occur again in the market if the company defaults. Financial authorities in each country need to strengthen their vigilance.
The Chinese government has been letting Evergrande’s unbridled business expansion continue under its reform and opening-up policy. However, when the surge in real estate prices became a social problem, the government changed its policy and has taken such actions as restricting the total amount of real estate loans by financial institutions.
The Chinese government should act cautiously and calmly to prevent the crisis from spreading through a sudden implementation of tightening measures.
Chinese President Xi Jinping has touted his slogan of “common prosperity,” which aims to narrow the gap between the rich and the poor. Some say that Beijing has given priority to controlling real estate prices, but is reluctant to bail out Evergrande. How the Chinese government plans to deal with the situation remains unclear.
The Xi administration should be aware that such policy uncertainty has been causing market anxiety.
— The original Japanese article appeared in The Yomiuri Shimbun on Sept. 24, 2021.
"Editorial & Columns" POPULAR ARTICLE
-
Wrong-way Driving on Expressways: Devise Ways to Send Warning to Drivers When Mistakes Occur
-
BOJ Monetary Policy: Rate Hike Scenario needs to be Reexamined
-
China-Russia Summit Meeting: Major Powers’ Self-Righteousness Threatens Postwar Order
-
Japan-U.S. Talks May Foreshadow Global Economic Future; Trump’s Views on Tariffs, Trade Seem Stuck in Past
-
Kashmir Situation: India, Pakistan Must Restrain Selves to Prevent a Chain of Retaliation
JN ACCESS RANKING
-
Core Inflation in Japan’s Capital Sharply Accelerates in April
-
U.S. Holds Fire Over Yen Exchange Rate Targets; Bessent Said to Understand Negative Impact on Markets
-
Rents Mark 30-Year-High Rate of Rise; Decrease in Disposable Income May Dampen Personal Consumption
-
Japanese Govt Mulls Raising Number of Cars to be Imported Under Simplified Screen System in U.S. Tariff Negotiations
-
Japan Must Take Lead in Maintaining Free Trade System, Says Chairman of Japan Trade Group