As bad as 2021 was for Evergrande, the Chinese real-estate giant floundering in debt, it was at least still around as the year drew to a close. By the end of 2022, Evergrande as we knew it may altogether cease to exist.
That is, admittedly, the most dire prognosis, but it isn’t an outlandish one. After Evergrande defaulted on an $82.5 million coupon payment to bondholders overseas in early December, it stood on the precipice of becoming China’s biggest-ever defaulter, its offshore bonds worth $19.2 billion. A total collapse will ignite a market crisis in China and also—per the Federal Reserve—in the US.
Whether that happens or not depends on the Chinese government, and on what it decides to do with Evergrande. So far, the state has been reluctant to bail the company out altogether, lest it seem as if it will always rescue businesses that behave recklessly. But the fallout of collapse is likely to be so vast that China will feel compelled to intervene. How that happens will reveal volumes about the near future of China’s economy—and the world’s economy as well.