Yellen says economic slowdown in China would have “global consequences”

Evergrande’s collapse could slam Chinese banks

The Biden administration is closely watching the situation unfolding in China with the world’s most indebted property developer, according to Treasury Secretary Janet Yellen, who warned that its struggles to pay back billions in loans could have repercussions for the global economy.

Evergrande, China’s second largest property developer, is on the hook for more than $300 billion to creditors.

“Real estate is an important sector of the Chinese economy. It accounts for about 30% of demand,” Yellen told “Face the Nation” moderator Margaret Brennan in an exclusive interview. “And a slowdown in China, of course, would have global consequences. China’s economy is large, and if China’s economy were to slow down more than expected, it certainly could have consequences for many countries that are linked to China through trade.”

China’s Real Estate Crisis

Cash crunch at China Evergrande Group

In the past couple of weeks, the travails of China Evergrande, China’s and the World’s third largest property developper shook the financial markets, raising a number of questions about the Chinese property sector and the Chinese bond market as a whole. Evergrande is one of the largest developers in China and is listed in the world Fortune 500 List.

The firm has completed nearly 900 commercial, residential, and infrastructure projects throughout the country since 1997. The company is best known for its involvement in building the Flower City Stadium in Guangzhou. The stadium broke ground in 2020, and it is set to be the largest football arena in the world.Evergrande is also behind Ocean Flower Island, a man-made archipelago with theme parks, malls, and museums.

In the past few days, the police had to intervene to calm investors gathering in front of Evergrande’s headquarters, demanding the repayment of their favorite Wealth Management products. Trouble accelerated when the company delayed a redemption payment on US$ of bonds in June, and defaulted last week. The company’s shares fell 12% in Hong Kong, extending this year’s drop to 80% and closing at the lowest level since November 2014. Evergrande’s 12 % dollar bond due 2024 dropped about 5.5 cents to 25 cents, pricing in a high likelihood of default.