By Mahua Venkatesh

New Delhi, December 10: Chinese real estate giant Evergrande Group, once part of the prestigious Fortune 500, has been officially declared in default amid Beijing’s belated but desperate efforts to put in place measures to mitigate its impact. China’s real estate sector and its related services account for around 30 percent of the country’s gross domestic product (GDP) and, more importantly, around 29 percent of all bank loans are for housing.

In 2008-09, the United States went through a serious economic crisis with the fall of Lehman Brothers and the famous subprime crisis caused by the American real estate crash.

China’s real estate sector – one of the main engines of economic growth – has been on a volatile wicket for years with the housing sector artificially overrun – much like the US. An India Narrative report earlier noted that if China is relying excessively on the booming real estate sector for its economic growth, even though more than 20% of housing in urban markets remains unoccupied.

In 2018, Gan Li, of Southwestern University of Finance and Economics in Chengdu, told Bloomberg that no other country has such a high vacancy rate and that if there is a crack, the real estate market will collapse as a flood. China’s overall debt is mainly driven by real estate, businesses and shadow banking.

Chinese regional governments have been actively engaged in dangerous financial transactions since 2007. OTC lending or shadow banking is a common feature.

Finally, on Thursday, Fitch Ratings marked Evergrande Group as a narrow default, implying the company is just a cut above a total default that would include bankruptcy and liquidation exercise.

The South China Morning Post said the downgrade “comes after several attempts by China Evergrande, the world’s most indebted developer, to avoid such an event through last-minute bond payments repeatedly over the years. last two months “.

Previously, another integrated real estate developer Kaisa Group had been classified in the category of restricted defaults. In October, Fantasia Holdings was downgraded to default status.

“China’s economic recovery will not be as smooth as expected earlier. Problems of this level in the real estate sector will naturally have an impact on the economy,” adviser DK Srivastava told India Narrative. chief policy officer at EY India.

The near-crisis situation in the real estate sector would also lead to an increase in unemployment and a decrease in consumer spending.

For now, the world is closely monitoring developments in China and the steps Beijing is preparing to take to deal with the situation.