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Chinese Real Estate Developer in Liquidity Crisis | English Lesson

Jan 8, 2022

This week, our economic news comes out of China, and it concerns the huge real estate property developer Evergrande Group.

Pay attention and listen for the following words and hear how they are used in context. I’ll give you their definitions at the end to reinforce.

Real Estate / Liability / Onshore / Offshore / Liquidity Crisis / Contagion / Demolish

Well, to begin, let me tell you that the Chinese Evergrande Group was founded in 1996. It sells apartments mostly to upper and middle-income buyers. In 2018, it became the most valuable real estate developer in the world.

Evergrande is a huge company.  It owns more than 1,300 real estate projects in over 280 cities in China. Besides that, it also is involved in a number of other industries in the field of electric vehicles, health care, and even television production. It is the second-largest property developer in China by sales.

Now –– and this is key–– not only is Evergrande a very big company, since last year, it is also the most indebted real estate developer in the world. Currently, Evergrande is struggling to repay more than $300bn (£222bn) in liabilities, and by “liabilities”, in this case, I mean debt or money owed.

Now, $300 billion is a lot of debt! The money is owed to onshore and offshore lenders, or in other words, “onshore”: lenders from China, and “offshore”, lenders from other countries.  For now, Evergrande seems to be prioritizing its onshore lenders as they manage their liquidity crisis.

But the fact of the matter is that there is so much money at stake, lenders understandably become worried and their behavior can change. They begin to worry about loans they have made to the providers of Evergrande, who now might be at risk, and they start to worry about other real estate developers, too. So, the worry in China is of contagion. Well, because of their experience with Evergrande, banks in China may begin to restrict loans to other property developers, too. So, contagion is when an economic problem begins to spread, harming other areas… just like a spreading sickness.

The famous capitalist J. Paul Getty once said if you owe the bank $100 that's your problem. If you owe the bank $100 million, that's the bank's problem.

Now, just when you’d think things couldn’t get any worse for Evergrande, they did. Earlier this week when authorities in China ordered Evergrande to demolish 39 buildings in 10 days because they say the building permits were illegally obtained. And by demolish, I mean to tear down, to destroy! How they can possibly demolish so many buildings in such a short time is a mystery to me! Hopefully, they’ll find another solution.

Anyway, in summary, while problems are bad for the Evergrande Group, the fear of systemic contagion is inspiring the Chinese government, are working to help the struggling company. We’ll see what happens next!

Real Estate: Houses or buildings

Liability: In this story, liability is debt.

Onshore and Offshore: Inside a country and outside of the country

Liquidity Crisis: A lack of cash or liquid assets

Contagion: The spreading of something negative, like fear, or an illness.

Demolish: To knockdown, or tear down a building.

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