All eyes are on the heavily indebted China real estate conglomerate called Evergrande this week.
The company had a deadline of Thursday to pay almost $84 million worth of interest on a bond to avoid default.
A Bloomberg report said that China’s government told Evergrande to make the payment, and that news alone caused the stock market in the US to rise after falling nearly 1,000 points earlier in the week over fears of Evergrande defaulting.
The $84 million is a drop in the bucket of what the company owes; $300 billion.
The situation in China is so dire, that the government is warning officials all across the country that a “possible storm” is looming from Evergrande’s financial problems. They are the second largest property developer in China.
Real estate development in China is huge. In fact, real estate contributes 29% of the country’s GDP. In the United States, real estate contributes just 6.2% to the GDP.
Because of low interest in China, there has been an oversupply of housing and corporate real estate. Currently there is enough empty property in China to house over 90 million people.
President Xi Jinping and his administration are cracking down on the amount of debt property developers can take on.
Wall Street executives and economists all over the world are carefully tracking what happens with Evergrande. Some say a collapse would be equal or even greater than the Lehman Brothers meltdown in 2008, and could cause a financial crisis worldwide similar to what the world experienced 13 years ago.