Two prominent Chinese property firms have defaulted on $1.6 billion in bonds to foreign creditors. The Fitch rating agency reported Thursday as the country's debt-ridden real estate sector continues to deteriorate. China's government caused a property industry crisis last year when it launched a campaign to rein in excessive debt among real estate enterprises and wild consumer speculation.
Businesses that had amassed massive debt to expand had their taps shut off, and they were forced to struggle to complete projects, pay contractors, and fulfill both domestic and foreign repayment obligations.
Evergrande, a real estate juggernaut, has been the most visible company engaged in the crisis, having struggled for months to acquire funds to repay $300 billion in debt.
Fitch reported Thursday that the corporation has defaulted for the first time on over $1.2 billion in bond obligations, downgrading the firm to a limited default rating.
Additionally, Fitch reported that Kaisa, a smaller real estate company but one of the most indebted in China, had defaulted on $400 million in bonds.
Evergrande's problems were apparent in the summer when it became clear how indebted the company had gotten. The staggering figures rocked China's credit markets because of the company's sheer size and the possible impact if it failed.
It missed its first foreign bond payments last month, but a 30-day grace period was included. That period expired on Tuesday, with several bondholders alleging they had not been reimbursed.
Questions have been raised about whether Evergrande is too large to fail, considering that its demise would send shockwaves across the broader Chinese — and even global — economies.
The Biden administration closely monitored developments in China, US Treasury Secretary Janet Yellen told CBS News presenter Margaret Brennan on "Face the Nation" in November. Yellen cautioned that Evergrande's difficulties might have global ramifications.
"The Chinese economy is heavily reliant on the real estate sector, and it accounts for around 30% of "There is a need," Yellen stated in an exclusive interview with Brennan. "Of course, a slowdown in China would have worldwide ramifications. China's economy is enormous, and if it slows more than projected, it will undoubtedly have ramifications for many countries that trade with China."
In its latest financial stability report, the Federal Reserve warned of direct dangers to the United States, stating that "Financial stresses in China could strain global financial markets through a deterioration of risk sentiment, pose risks to global economic growth, and affect the United States."
However, CBS News Asia correspondent Elizabeth Palmer writes that while investors in the United States and Europe have essentially accepted that their investments in Evergrande may soon be worthless, stock markets in the West have been anticipated the news and are therefore less likely to be shaken.
Meanwhile, the Chinese government has intervened to deconstruct Evergrande in a controlled manner, averting a spectacular crash that, in the worst-case scenario, may leave Chinese citizens who purchased properties from the corporation homeless.
As Lesley Stahl of "60 Minutes" recently highlighted, the involvement and crackdown on deeply indebted enterprises are part of a broader reversal of China's free-market policies.
Beijing now appears willing to end the 25-year-old real estate empire that has defined China's rapid rise in recent decades. Following Evergrande's announcement on Friday that it may be unable to pay its financial obligations, the government summoned its founder. It announced various actions that paint the most precise image of Beijing's strategy for resolving the situation.
A new seven-member "risk management committee" has been formed to oversee the restructuring. The group comprises only two company executives; the remainder is state officials.
Guangdong's provincial government is also sending a working team to the company, indicating a "potential takeover of Evergrande." according to Jefferies analysts.
Kaisa is China's 27th most prominent property developer, a smidgeon compared to Evergrande. However, its default will have minimal effect on investor anxieties.
Bloomberg News reports that at least ten lower-rated real estate firms had defaulted on onshore or offshore bonds since the summer, up to Thursday.
Before Thursday, Bloomberg reported that Chinese borrowers had defaulted on a record $10.2 billion in offshore debts, with real estate businesses accounting for 36% of those defaults.
