The liquidation of Evergrande could push China towards crypto!

The court ruling ordering the liquidation of developer Evergrande highlights the enormous difficulties facing the Chinese real estate sector. In an attempt to revive its economy, China is now even considering relaxing its stance on crypto.

A Giant Developer Liquidated

The Hong Kong court has pronounced the liquidation of Evergrande, China’s largest real estate developer. The company’s shares plummeted 20% upon this announcement before trading was suspended. Evergrande, burdened with a colossal debt of 300 billion dollars, was already considered the most indebted developer on the planet. 

This groundbreaking judicial decision sounds like a thunderclap for the real estate industry in China. It increases the pressure on a sector already weakened by two years of crisis, as evidenced by the 85% drop in an index that includes the country’s real estate developers over the period.

China, A Stricken Real Estate Sector

The real estate market in China is going through its worst crisis since 2015. Sales of new homes and prices are collapsing, hit by the “zero Covid” policy that has paralyzed construction sites and undermined buyers’ confidence. Developers also suffer from a drastic tightening of credit access decreed by the authorities.

The resounding liquidation of Evergrande sends an alarming signal, showing the sector’s inability to overcome its financial weaknesses. It increases the risk of cascading bankruptcies and systemic crisis with dire consequences for the Chinese economy, for which real estate is traditionally the driving force.

Faced with the Urgency, Are Cryptos the Solution?

Faced with the collapse of their real estate pillar, Chinese authorities are preparing hundreds of billions of dollars in stimulus measures. The government is even considering outright banning short sales of stocks to try to support its financial markets.

But given the magnitude of the crisis, some are also suggesting a much more radical route: a possible relaxation of China’s position on crypto. While crypto assets are officially banned in the country, their authorization could serve to stimulate domestic consumption and boost Chinese growth in the short term.

Yuan-backed stablecoins could notably be used by the government to quickly inject liquidity into the real economy. Although unthinkable until recently, this scenario reflects the authorities’ desperation to break the negative spiral.

The Evergrande collapse symbolizes the unprecedented systemic crisis that undermines the real estate sector in China, the lung of the country’s economic growth. Even at the cost of renouncing its past positions, Beijing seems ready to authorize crypto in an attempt to stimulate its beleaguered economy.