The court decision ordering the liquidation of developer Evergrande highlights the enormous difficulties facing the Chinese real estate sector. To try to revive its economy, China is now even considering softening its position on crypto.
A giant promoter liquidated
The Hong Kong court has ordered the liquidation of Evergrande, China’s largest real estate developer. The group’s shares collapsed by 20% on this announcement before its trading was suspended. Evergrande, crushed by an abysmal debt of $300 billion, was already considered the most indebted developer on the planet.
This resounding legal decision sounds like a bolt from the blue for real estate in China. It increases the pressure on a sector already weakened by two years of crisis, as evidenced by the 85% fall in an index bringing together the country’s real estate developers over the period.
China, A disaster real estate sector
The real estate market in China is going through his worst crisis since 2015. New home sales and prices are collapsing, hit by the “zero Covid” policy which has paralyzed construction sites and undermined buyer confidence. Developers are also suffering from a drastic tightening of access to credit decreed by the authorities.
The resounding liquidation of Evergrande sends an alarming signal, showing the sector’s inability to overcome its financial fragilities. It increases the risk of cascading bankruptcies and systemic crisis with formidable consequences for the Chinese economy, of which real estate is traditionally the driving force.
Faced with the emergency, are cryptos the solution?
Faced with this collapse of their real estate pillar, the Chinese authorities are preparing hundreds of billions of dollars in recovery measures. The government is even considering outright banning short sales of stocks in an attempt to prop up its financial markets.
But faced with the scale of the crisis, some are also talking about a much more radical approach: a possible softening of China’s position vis-à-vis crypto. While crypto-assets are officially banned in the country, their authorization could serve to stimulate domestic consumption and revive Chinese growth in the short term.
Stablecoins backed by the yuan could in particular be used by the government to quickly inject liquidity into the real economy. Although unthinkable until recently, this scenario reflects the dismay of the authorities ready to do anything to stop the negative spiral.
The sinking of Evergrande symbolizes the unprecedented systemic crisis which is undermining the real estate sector in China, the heart of the country’s economic growth. Even if it means renouncing its past positions, Beijing seems ready to authorize crypto to try to stimulate its bloodless economy.
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