CBA Newsletter July 2021

Ifpeoplearetonameonecompanythatbecamewell-knownaroundtheworldquickly,theymightsayothernames before2021,butafterSeptemberallwouldsayEvergrande.Notbecauseofitsgroundbreakingsuccess,butthe poorlymanagedfinancialcatastropheleadingtoitscollapse.TheCurrentBusinessAffairsNewsletter(JulyIssue) ofTheBusinessStudents'Union,HKUSTSUistakingyouthroughthedeathofoneofthegreatestcompaniesin China. Landdevelopmentbehemoth Balancetippingagainstthegiant Evergrande,partofFortuneGlobal500andowning Allthe above projectsrequire certain amountof morethan1,300projectsover280cities,beganthe capital to support their operations, therefore legendaryjourneyin1996,foundedbyHuiKaYanin Evergrandechosetorelyheavilyondebtfinancing, Guangzhou.Sincethen,ithasexpandedaggressively sinceraisingdebtscanquicklysourceconsiderable andishiringaround200,000employees,inaddition amountofcapitalfromthebanks.Theprojectssuchas providing3.8millionnewjobsperyear.In2018,the propertydevelopmentandthemeparkbusinessare reputationofEvergranderosetoitspeakandrendered notatallliquidLoaremnIpsumd haverelativelylongpayback tobethemostvaluablerealestatecompanyinthe period,thusthecompanyismakingriskybetsover world,withthemostsignificantachievementasthe decades,withoutkeepinginmindofitsnon-liquid 100-billion-dollarartificialislandconstructioninthe businessnature. SouthChinaSea. Notto mention thatthe Chinese developer has Huididnotsatisfywithmererealestatebusiness.Asa establishedanunhealthypractice,whichtheycollect result,Evergrande integrated with electric vehicle proceedsfrom property customersbefore actually productions,bottledwaterretailbusinessesandeven handing over the finished flats.It means that sports team training. With much confidence, Evergrandeconsumesthefutureincomeandleaves Evergrandeextendeditsbusinesstothemeparkand onlyliabilitiesasunfinishedconstructionsformany more luxurioussectors.The aggressive expansion projects,leveragingthedebtratiotoatippingpoint style,however,indicatestheunderlyingcauseofthe wherethecompanyisnolongerabletorepaycurrent greatfalloftheconglomerate. debtswithitshighvaluebutunsoldassetsonhand. Sources:Shang-jinWei.“PreventinganEvergrandeConfidenceCrisisinChina”ProjectSyndicate,29September2021, www.project-syndicate.org/commentary/how-chinese-government-can-prevent-evergrande-confidence-crisis-by-shang-jin-wei-2021-09