International media report that the real estate and construction company Evergrande Group, one of the two most important in China, could default
in the coming days. There is uncertainty among analysts about the measures that the State may take with respect to a possible bailout and its consequences for the national and global economy.
According to Reuters news agency
, China’s major banks have been notified that Evergrande will not be able to meet its loan payment commitments due on September 20, 2021. The company, the country’s second largest in its sector, is facing a liquidity crisis that could have an impact comparable to other major global crises, such as that of 2008.
At the moment, Reuters reports that Evergrande is negotiating with financial institutions to extend the deadline or renew the loans. The problem is that other creditors and investors are also demanding payments from the company, as are suppliers. All are fearful of Evergrande’s lack of liquidity.
The possible impact of Evergrande’s crisis in China
Although for the aforementioned media is “unlikely” to happen, one of the hypotheses that experts point out with respect to the complications that Evergrande is experiencing is that the Chinese government offers a financial rescue
In this sense, regulators warn about the consequences that could have for the country’s financial system the default of the firm’s obligations, which amount to USD 305,000 million. As analyst Adam Cochran points out in an explanatory Twitter
thread, this number is higher than the GDP of countries such as Ireland, Denmark, Hong Kong and Portugal.
On the other hand, Cochran points out that the massive sale of properties by the real estate company to be able to face its debts will make its shares fall even more, as they have been doing in recent months.
Evergrande shares on the Hong Kong stock exchange have been falling for the past three months.
This collapse of the Chinese company could be comparable to that of Lehman Brothers in 2008, says the expert. On that occasion, the total amount of assets that were “dissolved” was USD 600 billion; Evergrande owns USD 200 billion in shares and another USD 300 billion in debt. This adds up to USD 500 billion in total.
So far, there has been no official communication from the company or the Chinese government. Meanwhile
Meanwhile, financial rating agency S&P downgraded Evergrande to CCC, indicating that it is a “high risk” company to invest in. The reasons are based on its reduced liquidity and default risks.
To get a sense of the scale of the real estate crisis, Reuters reports that, according to financial agency Fitch, Evergrande owes USD 88.8 billion to banks and other entities in loans from China, the United States, Canada, the United Kingdom and Australia, among other countries. Banks are also exposed to Evergrande’s debts to its creditors, which amount to USD 103.65 million.
The role of bitcoin in the face of an alleged crisis in China
In case this default occurs and the Chinese government decides to bail out Evergrande to avoid a financial crisis, one of the immediate measures would be to print more fiat money. This would provide an injection of liquidity into institutions and for the general population.
However, this would also lead to higher inflation. As CryptoNews has reported, even the US dollar has lost its purchasing value, and this is when the leading cryptocurrency emerges as an option that has appreciated in recent years. Even at the institutional level, bitcoin is positioned as a store of value.
Adam Cochran believes that in the event of a crisis that also affects stablecoins such as Tether (USDT) or USD Coin (USDC), due to their holding of commercial paper that could depreciate, people would turn to bitcoin and ether (ETH) regardless of their price. In that scenario, of course, the value of cryptocurrencies would increase significantly.
Currently, bitcoin is banned in the Asian giant. The government has blocked access to exchanges to prevent people from trading this type of cryptoassets. In addition, cryptocurrency mining was banned in several provinces and companies are also prohibited from offering services related to cryptocurrencies.