Too Big. May Still Fail

As developer Evergrande faces a debt crunch, China tries to depend less on real estate

- Pat Regnier

Sunny Peninsula, a seaside development in the southern Chinese city of Guangzhou, was supposed to house 5,000 families in dozens of towers spread across an area the size of 30 soccer fields. Many of the buyers were white-collar workers benefiting from the fastest urbanization in human history.

But the project now looks more like the set of a disaster movie. Half-finished apartment blocks stand empty and abandoned. Untouched for months in the humid summer weather, piles of rebar and steel beams are accumulating coatings of rust.

China Evergrande Group, until recently the world’s largest property developer, owns dozens of stalled sites like Sunny Peninsula across China. Buckling under more than $300 billion in liabilities, the company is close to collapse, leaving 1.5 million buyers waiting for finished homes.

The global financial markets are bracing for potential aftershocks. Evergrande is China’s largest issuer of high-yield dollar-denominated bonds, and bills are coming due to an array of banks and suppliers. Given its footprint in the housing market, there’s also a risk of a disorderly collapse triggering a broader decline in property prices—bad news in an economy where 27% of loans are for real estate. The stress isn’t only being felt in bankers’ offices: Earlier this month homebuyers surrounded a government office in Guangzhou to demand construction be restarted on their apartments, and unconfirmed videos circulating on social media depict similar protests in other cities. Furious retail investors who helped fund Evergrande’s expansion have turned up at the company’s Shenzhen headquarters to complain about delayed repayments on wealth management products it sold.