How Evergrande Broke “Too Big to Fail” in China’s Bust

The End of an Empire

Evergrande was a giant company. In fact, it showed China’s fast growth. Then, it fell hard. Ultimately, the company broke under its own debt. However, this did not happen overnight. For years, China built its economy on property. As a result, cranes were everywhere in cities. Initially, this plan seemed perfect. But it had a big weakness. Specifically, that weakness was too much debt.

This is more than one story. On the contrary, it is a warning for all. For instance, it shows that debt growth has limits. Moreover, it proves that even huge companies can fail. Therefore, this article explains Evergrande’s story. First, we will look at why it fell. Then, we will share important lessons for you.

What Was Evergrande? The Boom Time

First, let’s see its rise. Evergrande was a housing builder in China. It started in 1996. Under its boss, Hui Ka Yan, it wanted fast growth. Similarly, the company grew as China’s cities grew.

Huge Size: In fact, it sold the most homes in China.
Many Businesses: Additionally, it also bought a soccer team. It even tried to make electric cars.
Debt for Growth: Most importantly, it borrowed massive sums to expand.

In short, Evergrande bet on never-ending growth. Consequently, it thought home prices would only go up. This, however, was a fatal mistake.

The Ticking Bomb: A Flawed Plan

Its plan was broken from the start. Specifically, it needed new loans to pay old ones. This is like a pyramid scheme. In other words, it only works with constant new cash.

Three things caused the bomb to explode:

Too Much Debt: For example, Evergrande owed over $300 billion. To put it in perspective, this is more than many countries.
The “Pre-sale” Trap: In China, people pay for homes before they are built. Then, Evergrande used this cash for other jobs. As a result, it created a giant IOU.
New Rules: In 2020, China made new laws. These “Three Red Lines” rules stopped builders from taking on new debt. Consequently, this cut off Evergrande’s money supply.

So, the game was over. Therefore, Evergrande had no new money. In short, its failure began.

A Timeline of Failure

The collapse happened slowly. Still, it shocked the world.

2021: The Start. First, Evergrande missed loan payments. Then, it failed to pay its international bonds.
2022: Building Stops. Meanwhile, work stopped on many building sites. As a result, people who paid for homes protested. After all, they had no houses.
2023: The End Order. After that, a Hong Kong court said the company must close. In fact, it ordered a liquidation.
2024: Gone from Market. Finally, Evergrande was removed from the stock market. Its shares were worth zero.

So, the giant was gone. In conclusion, its money was gone.

The Human Cost: Broken Dreams

The numbers are big. But the real pain is for people.

Empty Buildings: For instance, Evergrande had 1,300 projects. Moreover, many were half-built. Consequently, about 1.5 million buyers waited for homes.
Lost Savings: For families, a home is their biggest buy. Sadly, they lost their life’s savings.
Lost Trust: Similarly, people stopped trusting other builders. Therefore, this made the housing market worse across China.

Ultimately, the promise of a safe home was broken.

The Money Problem: Who Gets Paid?

The court order was just step one. Now, who gets the leftover money? The answer is simple: not everyone.

Evergrande has some assets. But it has more debts. Therefore, people get paid in this order:

Banks: They lent money first. So, they get paid first.
Homebuyers: The government wants these people to get homes. Thus, they are next.
Bond Investors: These are people abroad who lent money. Unfortunately, they will likely get almost nothing.

As a result, this is a big fight. In the end, most people will get very little back.

The Domino Effect: Did It Break China’s System?

Evergrande was not alone. Instead, it was the first big one to fall. Then others followed.

Other Builders Fell: For example, companies like Country Garden also had money troubles.
Ghost Cities: Similarly, the crisis showed many empty cities in China. They were built but no one lives there.
Local Governments: Additionally, these groups need land sales for cash. But builders stopped buying. This hurt their budgets.

Thus, Evergrande’s fall showed the whole Chinese housing model was cracked.

Key Lessons from the Fall

This story teaches us all.

For Regular People:

Watch Debt: Firstly, too much debt is a red flag. So, be careful.
Spread Your Money: Secondly, do not put all your money in one place.
Check the Company: Finally, see how a company is run before you invest.

For Leaders:

Make Rules Early: Generally, good rules early can prevent a mess later.
No One is Safe: However, even the biggest company can fail.
Be Open: Conversely, clear books help everyone see problems.

Your Action Plan

What can you do now? Therefore, here are simple steps.

For You:

Learn About Money: First, understand the risks of big buys like a house.
Ask Questions: Next, pick companies that are open about their money.
Save Cash: Finally, keep an emergency fund for hard times.

For Business Owners:

Borrow Less: Firstly, do not grow only with debt.
Plan for Bad Times: Next, see if your business can survive a downturn.
Manage Risk: Lastly, have a good team to watch your money.

Key Takeaways: The Final Word

Evergrande’s story is a clear lesson. Specifically, debt growth is risky. In other words, it is a weak foundation.

“Too Big to Fail” is a myth. In fact, big companies can and will fall.
China’s housing boom is over. Consequently, the easy money is gone.
People suffer most. As a result, millions lost their homes and savings.
The world is connected. Therefore, a problem in China affects us all.

In the end, Evergrande changed the game. It showed the old way must end. Now, we need safer, smarter growth. Indeed, the whole world must learn from this.