Chinese Developer’s Failure May Affect Russian Steel and Mining Companies

The potential failure of the Chinese property giant Evergrande may impact Russia’s stainless steel and mining businesses as a result of a decrease in demand for building raw materials, specialists told Izvestia. But for the global financial system, it won’t become a “black swan,” although China’s economic development will drop considerably.

On 21 September, China Evergrande Group had failed, and its debt total surpassed $301 bln, to repay two commercial bank loans. In July, when the real estate firm reported that it had sales down by 88 percent, it began to have difficulties. On Thursday, the firm will make onshore bond payments and will be allowed to do so.

Finam expert Natalia Pyryeva stated that, nevertheless, the Chinese economy would suffer severe repercussions. According to her, the first would be impacted by banks that have already started to deny loans to individuals who intend to purchase houses in the structures the business builds. 

Next, the expert anticipated that the tsunami would strike the construction sector and the whole financial system of the nation, the blow would come to Evergrande’s suppliers.

Some analysts predicted the company’s default would be comparable to the fall of Lehman Brothers when word began of Evergrande’s inability to pay its obligations, which caused the worldwide economic crisis in 2008. But, as Anton Tabakh, Managing Director for Macro-economic Analysis and Forescapings at RA Rating Agency, pointed out, China’s position in the world’s financial system is not that large.

The biggest danger that Evergrande’s uncontrolled default may lead to a fall in prices on China’s property market could lead to a fall in the demand for metals and building materials, VTB investment strategist Stanislav Kleshchev said. This may impede development in the Chinese economy and put pressure on commodities prices, the analyst said.