China’s real estate crisis threatens global economy

Photo by Alexander Schimmeck on Unsplash
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The crisis in the real estate market in China poses risks to the global economy, as the US Fed points out.

Kaisa’s appeal – the latest from Chinese real estate companies to default on bonds – for state and banking support to meet its debts to bondholders, suppliers and employees – was the “drop” that led to bonds of China’s construction groups in historic decline.

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Fitch downgraded Kaisa yesterday to the point of insolvency. The international house justified the downgrade, citing the deteriorating financial situation of the Chinese company, its attempt to sell assets, and the unexplained debt of the group’s capital management sector.

The immediate consequence was a sharp drop in the bond prices of Chinese real estate groups – not only Kaisa and Evergrande, which started the crisis two months ago, but even the strongest companies in the industry such as R&F Properties and China Vanke. The bond prices of both companies yesterday marked the largest daily drop in their history.

The US Federal Reserve has already warned that the crisis in China’s real estate market is now posing global risks. “Pressures on its financial system could spread to international capital markets by raising risk ratios,” said the Fed, and experts point out that the big problem now is that the risk is evolving into a systemic one.

The estimations of the European Central 

The peak of the Chinese thriller in real estate comes at the same time as the jump in real estate demand in Europe after the pandemic, in which the ECB is particularly prominent in its latest financial bulletin.

The European Central Bank estimates that the demand for real estate in the Eurozone will be maintained at high levels, raising prices and making it increasingly difficult to obtain housing for the poorest households.