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Every now and then a business becomes so big and messy that governments fear what would happen to the economy at large if it failed. In China, Evergrande, a sprawling real estate developer, is that company.

Evergrande has the distinction of being the most indebted real estate developer in the world and has been on life support for months. A steady drumbeat of bad news in recent weeks has accelerated what many experts warn is inevitable: failure.

Rating agencies such as Fitch, Moody’s and S&P have said Evergrande is strapped for money and time. Evergrande faces more than $ 300 billion in debt, hundreds of unfinished residential buildings, and angry vendors who have shut down construction sites. The company began paying overdue bills by ceding unfinished properties, and even asked employees to lend it money.

Observers are watching to see if Chinese regulators keep their promise to clean up the country’s corporate sector by letting “debt bombs” like Evergrande fall.

In its heyday ten years ago, Evergrande sold bottled water, owned the best professional soccer team in China, and even took a brief interest in pig farming. It has grown so big and sprawling that it has a unit that manufactures electric cars, although it has delayed mass production.

Today, Evergrande is seen as a rocky threat to China’s biggest banks.

The company, founded in 1996, took advantage of China’s epic real estate boom that urbanized large swathes of the country and resulted in nearly three-quarters of household wealth tied up in housing. This has placed Evergrande at the center of power in an economy that has relied on the real estate market for supercharged economic growth.

The company’s billionaire founder Xu Jiayin is a member of the Chinese People’s Political Consultative Conference, an elite group of politically well-connected advisers. Mr. Xu’s connections likely gave creditors more confidence to continue lending money to Evergrande as it grew and expanded into new businesses. Eventually, however, Evergrande found himself with more debt than he could afford.

In recent years, she has faced lawsuits from buyers who are still awaiting the completion of the apartments they have paid for. Suppliers and creditors have claimed hundreds of billions of dollars in unpaid bills. Some have suspended construction on the Evergrande projects.

Evergrande could have continued if it hadn’t been for two problems. First, Chinese regulators are cracking down on the reckless borrowing habits of real estate developers. This has forced Evergrande to start selling off part of his sprawling business empire, and it’s not going so well.

It has yet to sell its electric vehicle business, despite discussions with potential buyers. Some experts say buyers are expecting a fiery sale.

Second, the Chinese real estate market is slowing down and the demand for new apartments is lower. The National Finance and Development Institution, a leading think tank in Beijing, said the housing market boom had “shown signs of a turning point,” citing weak demand and slowing sales.

This is contributing to an overall slowdown in China’s economic growth, which – in a self-sustaining cycle – could further erode demand for Evergrande properties.

Much of the money Evergrande has been able to raise comes from pre-sold apartments that have yet to be completed. Evergrande has nearly 800 unfinished projects across China and up to 1.6 million people are still waiting to move into their new homes, according to a Barclays estimate.

Evergrande cut prices for new apartments, but even that failed to attract new buyers. In August, it had a quarter of sales less than a year ago.

Beijing will be tempted to say ‘no’, but a collapse could cause serious damage, leaving domestic owners, suppliers and investors unhappy. And Beijing has finally decided to support other large companies that have encountered big problems in the past.

For years, many investors gave money to companies like Evergrande because they believed Beijing would always step in with a bailout if things got too volatile. And for decades, investors were right. But more recently, authorities have been more willing to let companies go bankrupt in order to bring China’s unsustainable debt problem under control.

Authorities brought Evergrande’s leaders to a meeting in August and told them to get their debt in order. They also continued to tell its banks to cut back on developer loans. Evergrande said on September 14 that it had hired restructuring experts to help it “explore all possible solutions” for its future.

A central bank campaign to bring home debt under control and reduce the banking sector’s exposure to distressed developers should mean that an Evergrande bankruptcy would have less impact on China’s financial system.

The reality is perhaps more complicated.

The panic of investors and homebuyers could spill over into the real estate market and affect prices, affecting household wealth and confidence. It could also shake up global financial markets and make it more difficult for other Chinese companies to continue to finance their operations with foreign investment.

Writing in the Financial Times in late August, billionaire investor George Soros warned that an Evergrande default could cause the Chinese economy to collapse.

Chen Zhiwu, a finance professor at the University of Hong Kong, said failure could lead to a credit crunch for the entire economy as financial institutions become more risk-averse. A failure of Evergrande was “not good news for the financial system or the economy in general,” he said.

But not everyone is so pessimistic. Bruce Pang, an economist at China Renaissance Securities, said a default could lay the foundation for a healthier economy in the future. “If Evergrande fails with the fading belief that ‘too big to fail’ it will prove that Beijing is more tolerant of defaults despite short-term pain and disruption,” Pang said.

Foreign investors owe $ 7.4 billion in Evergrande bond payments next year alone. At various points throughout the year, they panicked, sending secondary market bond trades to new lows. Evergrande bonds have traded at times between 25 and 50 cents on the dollar. Its debt trading was so frantic at one point that regulators briefly halted trading.

The company’s main listing in Hong Kong has lost more than three-quarters of its value over the past year.

Foreign investors fear that if Evergrande fails, all the money owed to them will vanish into thin air. Beijing officials have indicated they are no longer willing to bail out foreign and domestic bondholders. In any bankruptcy proceeding, they would be at the bottom of the list of creditors to get any of the assets of the Chinese company.

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