As contagion fears begin to engulf global markets, today James Turk discussed the crisis and said gold will move to center stage.
Evergrande Crisis, China And The Metal Of Kings
September 20 (King World News) – James Turk: The problems with Chinese real estate giant Evergrande are taking centre stage, Eric, and rightly so. A default on its $300 billion of debt could really knock the markets. But the important question is whether the turmoil already being created is the start of a financial crisis, or just a warning shot over the bow.
There were plenty of warning signs before the 2008 crisis. Two Bear Stearns real estate funds collapsed in May 2007, highlighting the fragility back then, which was followed by the collapse of Northern Rock Bank in England in August 2007.
As financial conditions worsened, Bear Stearns itself collapsed in March 2008. But it was still another six months before the height of the crisis was reached with the Lehman Brothers collapse in September 2008…
Finger pointing, crushing debt, and a financial giant that wasn’t supposed to fail – does this sound familiar? No, I’m not talking about Lehman Bros. or Bear Stearns in 2008. It’s a hugely important Chinese property firm, and it’s failing famously.
Until a few weeks ago, most people in the United States had never heard of Evergrande. I suppose you could say the same thing about DiDi, Tal Education, and New Oriental Education – and look at where those stocks are now.
Evergrande is much bigger than those companies, however. Listed in Hong Kong and based in the southern Chinese city of Shenzhen, Evergrande is a real estate developer that’s part of the Global 500, which includes the world’s biggest businesses by revenue.
The company employs around 200,000 people. However, it also indirectly helps sustain more than 3.8 million jobs each year.
Founded by Chinese billionaire Xu Jiayin, Evergrande owns more than 1,300 projects in more than 280 cities across China. Moreover, the company has invested in electric vehicles, sports and theme parks, as well as a food and beverage business.
With big spending, however, comes big problems sooner or later. Evergrande is infamous for being China’s most indebted developer, with more than $300 billion worth of liabilities.
On top of all that, Evergrande recently warned its investors of cash flow issues, saying that it could default if the company is unable to raise money quickly.
Additionally, Evergrande revealed in a stock exchange filing that it was having trouble finding buyers for some of its assets. The company has “strayed far from its core business, which is part of how it got into this mess,” according to Mattie Bekink, China director of the Economist Intelligence Unit.