China Evergrande Group shares plunge 87 per cent after reporting $7 billion loss

The shocking update saw Evergrande fall to just HK$0.35 on Monday, hot on the heels of an announcement that it had recorded a staggering $A7 billion loss.

The stock price wipe-out saw Evergrande’s market value plunge to $A910 million – a far cry from its heyday in 2017, when it was worth more than $A77 billion – and comes as China’s tanking real estate sector continues to spark fears of widespread economic contagion.

Earlier this month, China’s Evergrande Group made headlines after filing for bankruptcy in New York.

The firm – which was previously China’s second-largest property juggernaut – has been caught in a “death spiral” since 2021 with $US300 ($A468) billion in liabilities.

Now, it has announced that in the first six months of the year to June 30, Evergrande recorded a loss of 33 billion yuan ($A7 billion), on top of more than 582 billion yuan of losses over the past two years.

However, in a filing released on Sunday, the company insisted it was full steam ahead, and that it “actively planned for the resumption of sales and successfully seized the short boom of the property market that emerged at the beginning of the year”.

The company soon plans to resume stock trading and its debt restructuring process.

The results come as China’s property crisis continues to escalate.

While Evergrande was the first firm to hit the skids in 2021 following Beijing’s introduction of the “three red lines” policy in 2020, which required that developers have a liability-to-asset ratio (excluding advance receipts) of less than 70 per cent, have net gearing ratio of less than 100 per cent and have cash-to-short-term debt ratio of more than 1x, a string of other high-profile companies soon followed suit.

They included Fantasia, Modern Land, Kaisa Group Holdings and Sunac China Holdings, among others – and in recent weeks, the nation’s leading developer, Country Garden Holdings, was added to the grim list.

In early August, Country Garden missed bond payments and warned of multibillion-dollar losses, which sent its share price plunging.

It is now on the brink of default, with insiders expecting the firm to announce a first half loss soon.

Its boss, Yang Huiyan, who was until recently one of the richest women in Asia, acknowledged the extent of the disaster in a statement earlier this month, admitting: “We’re facing the greatest difficulties since our establishment”.

The struggles faced by Evergrande, Country Garden and other Chinese property developers have sparked renewed fears of an economic contagion, which is when one major failure triggers a much broader collapse.

‘Ticking time bomb’

The latest property news comes as China grapples with a drastic slowdown after being expected to drive a third of the planet’s economic growth in 2023.

That hasn’t happened, and it’s causing panic internationally.

In fact, US President Joe Biden went as far as saying recently that China’s financial woes were a “ticking time bomb”.

Speaking at a political fundraiser earlier this month, he predicted that China was in “trouble” and that it had the “highest unemployment rate going”.

“China was growing at 8 per cent a year to maintain growth, now close to 2 per cent a year,” he said.

His comments came after the nation officially slipped into deflation – where prices fall – in July, as countless countries across the world., including Australia, battle the opposite problem via cost of living crises.

Deflation is considered to be a grim sign for the economy, as it reduces consumer spending and disincentivises business production.

But while deflation by itself “isn’t such a bad thing”, according to BCA Research Inc chief global strategist Peter Berezin, the situation could easily escalate.

“ … if the rest of the world, the US and Europe, falls into recession, if China remains weak, then that would be a problem — not just for China but for the whole global economy,” he told Bloomberg TV.