As property development giant Evergrande's debt repayment deadlines loom, the question of whether China's economy will crash is becoming more urgent. If China's economy does crash, here's the impact we'd likely see within the country and around the globe. Evergrande is in deep, deep debt—but it's not alone. In , extended borrowing equaled up to percent of China's GDP. In , that total grew beyond percent. This shows that the debt bubble has been growing across the board for some time, and property developers like Evergrande are just one layer.
Evergrande chairman Xu Jiayin said in a letter to employees, "I firmly believe that Evergrande will walk out of its darkest moment and resume full-speed work and production. China has the option to bail out Evergrande, cementing its status as "too big to fail. Regardless of whether Evergrande defaults, the possibility of an economic crash in China is real.
Regardless, it has become a growing belief among some market analysts that China is showing signs of a possible economic collapse, pointing to recent events to substantiate their point. Over the course of , China has suffered from sinking oil prices, a shrinking manufacturing sector, a devalued currency and a plummeting stock market.
The pain extends beyond the stock markets, however. Oil prices, which have been declining for months, reached a six-year low in August, which has had an impact on the Chinese stock exchange. In turn, losses in the Chinese stock market triggered global sell-offs and prompted China to devaluate the yuan. Chinese demand for oil is further decelerating, which, to close the circle, is one of many pressures keeping global oil prices low.
Adding to the slowdown, Chinese manufacturing has declined to its lowest level in three years. This chain of events is becoming a source of alarm for some global economists. Worries of a continued freefall in China have raised concerns whether a spillover effect could hit the U. While the United States and China haven't always seen eye to eye on diplomatic issues, particularly human rights and cyber security, the two counties have built a strong economic relationship, with significant trade, foreign direct investment and debt financing.
After Mexico and Canada, China is the third-largest export market for U. As for imports, the U. Alongside an extensive amount of foreign trade, China has been a popular destination for U. The stock of foreign investment from the U. That being said, the U. Treasury bonds. Currently, China is one of the largest holders of U. For China, Treasuries are a safe and stable way to maintain an export-led economy and creditworthiness in the global economy.
As long as China continues to hold a massive amount of forex reserves and U. Given that the China's current turmoil has been followed by a downturn in U.
With China holding a great deal of Treasury debt, one worst-case scenario would be for China to dump their Treasury holdings, which could have fearsome implications for the U. That said, while this makes for an intriguing doomsday scenario, there's little actual evidence of any such forthcoming catastrophe.
After all China, who's no longer the largest holder of U. In fact, even if China really wanted to dump all of its U. Recent happenings in China suggest that the Chinese economy, lauded for its rapid expansion over the past 30 years, is no longer what it used to be.
With slower-than-expected growth for the next coming years, the world's second-biggest economy could become more subject to pressures that other advanced economies have long had to contend with.
As China continues to transition into having more aspects of a market economy, it may be more exposed to the ups and down of the normal business cycle. Treasury Bonds. Fantasia Holdings is not the size of Evergrande Group but it has missed a huge payment and asked for a halt to trading. Evergrande shares suspended ahead of possible 'grave announcement' but ASX jumps on post-lockdown travel hopes. China's property giant collapse might not hurt the world's economy, but pain lies ahead for Australia.
Evergrande's collapse could be very bad news for Australia and the world. Here's why. More on:. Government releases its modelling underpinning the net zero emissions target. Perth Airport 'missed the mark' in move to recognise traditional owners on boarding gates.
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