Evergrande Is Bankrupt! What Are The Implications For China And Malaysia?

Recently, the prominent Chinese development company, Evergrande, has been directed to liquidate their assets, signaling their bankruptcy. In August 2023, they filed for bankruptcy in the Manhattan Bankruptcy Court under Chapter 15, which involves the U.S. bankruptcy code for dealings with foreign companies. This incident brings to mind the Lehman Brothers’ event in 2008, which triggered the global financial crisis.

Evergrande is grappling with an economic crisis primarily due to excessive debts amounting to 300 billion USD. In 2020, the Chinese government introduced new regulations to control the debts of large real estate companies like Evergrande. These regulations affected Evergrande’s cash flow, forcing them to sell assets at a discount to sustain their business. However, this has also led to issues in repaying debts, resulting in a drastic fall in their stock value.

The Evergrande crisis has the potential to have negative impacts on property buyers in China, who may become more cautious and less confident in private companies. The plummeting stock value could also affect consumer confidence and lead to deflationary concerns. To address these challenges, the Chinese government may need to take significant economic stimulus measures. This situation poses a substantial risk to Malaysia’s export market, requiring more efforts to boost our economic performance.



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