Global financial crash: China warned industry to be decimated by £41billion debt

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Evergrande and Kaisa are two of China’s largest property developers and risk pulling China into a debt crisis after Fitch Ratings have cut both companies default ratings. The recent default has signalled the nation’s real estate markets could be about to experience a prolonged period of volatility. However, analysts claim authorities within the nation will contain the fallout.

On Thursday Fitch Ratings declared that Evergrande was in restricted default.

After the property giant defaulted on its dollar loan interest repayment it was officially labelled a defaulter for the first time.

The total that Evergrande has failed to pay overseas bondholders this month is £62million ($82.5m) in interest payments.

Fitch Ratings has also declared the smaller Kaisa Group Holdings to also be in restricted default.

Kaisa Group failed to repay a £301billion ($400bn) bond that matured on Tuesday.

The resulting downgrade by Fitch Ratings could trigger cross defaults on Evergrande’s £14billion ($19.2bn) of dollar debt.

The Chinese government are now trying to contain the damage from the Evergrande default.

The concern is that it could spark a wider contagion that could sweep through the property sector.

The resulting debt crisis could have knock-on effects for international businesses that have been involved in the Chinese property market.

However, Chinese authorities have fought back to contain the damage with the central bank in Beijing announcing a reserve-ratio cut on Monday.

This will allow Chinese banks to be able to increase the number of loans they give consumers and businesses, such as those in the troubled property market.

However, this lowering of the reserve-ratio could increase the rate of inflation.

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Chinese central bank Governor Yi said in a pre-recorded video message Thursday at a seminar in Hong Kong that, “the rights and interests of creditors and shareholders will be fully respected in accordance to their legal seniority”.

Evergrande is a 25-year-old property giant, founded by Hui Ka Yan, but the latest default could spell the end of this once sprawling real estate empire.

The property giant has now has disclosed more than £226billion ($300bn) of total liabilities as of June.

The company plans to “actively engage” with offshore creditors on a restructuring plan.

The current property crisis in China has been blamed on reckless expansion.

Speaking to Al Jazeera, Brock Silvers, the chief investment officer at Kaiyuan Capital in Hong Kong, said: “The downgrade may not have an overt or immediate impact on the Chinese process, but may subtly increase pressure on the company and regulators to quickly reveal initial restructuring proposals.”

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