US warns if Evergrande crisis could affect ‘whole world’

The yellow stars in the Chinese flag painted on a red wall next to a padlock, indicating the risk of trade with China

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The giant real estate developer Evergrande Group could affect the entire world, according to the United States.

These comments came from US Secretary of State Antony Blinken when he spoke about the ongoing crisis with the Chinese real estate giant.

News.com.au reported that Mr Blinken spoke to Bloomberg Television and said:

China has to make sovereign economic decisions for itself, but we also know that what China is doing economically is going to have profound consequences, profound effects on literally the whole world, because all our economies are so intertwined.

So certainly when it comes to something that can have a big impact on the Chinese economy, we make sure that China acts responsibly and handles any challenges effectively.

What happens to Evergrande’s debt?

Evergrande has a huge pile of debt, reportedly more than $ 400 billion.

Various media outlets, such as the Nikkei, have reported that Evergrande has missed another two-week bond payment. It was supposed to pay $ 46 million to investors, but those investors said they did not receive the payment to be paid.

Both investors reportedly said they and other bondholders have begun working with advisers to form a committee that could jointly push their claims with the company.

There are reportedly $ 7.7 billion in Evergrande bonds maturing next year.

Not only that, but two Hong Kong real estate agents are seeking to sue the company over unpaid commissions, according to Reuters, in the amount of about $ 8 million.

Another Chinese real estate developer, called Fantasia, also failed to make a $ 206 million bond payment. Could it mean that there are more problems ahead?

How does this affect ASX 200 shares?

China is Australia’s largest economic trading partner, so there may be some indirect effects on S & P / ASX 200 Index (ASX: XJO) if there were any problems that Mr Blinken could foresee.

Analysts have been considering the impact of an Evergrande error on ASX 200 iron stocks. Businesses like Fortescue Metals Group Limited (ASX: FMG), BHP Group Ltd. (ASX: BHP) and Rio Tinto Limited (ASX: RIO) may have a closer connection to Evergrande than the ASX 200 as a whole. Evergrande happens to be one of the largest individual users of steel (and therefore iron) in the world.

Some share prices of iron ore miners have fallen sharply in recent months. For example, Rio Tinto shares have fallen 23% in just two months.

Despite this decline, broker UBS still believes that Rio Tinto is a sale with a price target of $ 86. The rapid fall in the iron ore price leads the broker to believe that Rio Tinto’s profits in FY22 will be significantly affected. It also believes that supply of non-Australian iron ore will increase in the coming years, with more steel scrap also in China.

Time will tell what happens to the Evergrande Group crisis. It is interesting that the US Secretary of State decided to comment on what is going on.

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