China’s Evergrande files for bankruptcy

Growing anxiety is gripping the financial markets, driven by the ongoing real estate crisis in China and apprehensions surrounding potential further tightening measures in the U.S. China’s Evergrande Group, a prominent Chinese real estate conglomerate, has initiated bankruptcy protection proceedings within the U.S. Concurrently, there is a notable surge in interest rates for government bonds in the U.S., a consequence of the protracted period of elevated interest rates. On Friday, several Asian stock markets, including Korea, exhibited signs of vulnerability, reflecting adverse developments emanating from the world's two major economic powerhouses, often called the G2.

On Thursday (local time), Evergrande, a pivotal player in the unfolding “domino default” crisis within the Chinese real estate sector, formally submitted for bankruptcy protection in the U.S. The company has initiated proceedings for debt restructuring under Section 15 of the U.S. Bankruptcy Protection Act. This development comes on the heels of the default predicament faced by China's largest real estate entity, Biguiyuan (Country Garden), further intensifying concerns of a looming “Chinese Lehman crisis.”

Amidst discussions of economic overheating, the U.S. finds itself grappling with a palpable sense of “national debt shock.” The embrace of prolonged elevated interest rates as the new normal has led to a significant surge in long-term interest rates. The yield on the 10-year Treasury bond reached its loftiest point in 16 years, a level last witnessed in 2007, peaking at an intraday annual average of 4.3%. Simultaneously, the 30-year Treasury yield ascended to 4.41%, marking its highest point since 2011. Adding to this financial landscape, the 30-year mortgage rate surged past 7%, attaining its highest mark in 21 years.


dhlee@donga.com