US warns Evergrande crisis could affect ‘entire world’

The US is worried about the Evergrande crisis.

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The yellow stars of China's flag painted on a red wall next to a padlock, indicating the risk of trading with China

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The giant real estate developer Evergrande Group could impact the entire world, according to the US.

These comments came from the US Secretary of State, Antony Blinken, when he was talking about the ongoing crisis with the Chinese property giant. reported that Mr Blinken spoke to Bloomberg Television and said:

China has to make sovereign economic decisions for itself, but we also know that what China does economically is going to have profound ramifications, profound effects, on literally the entire world because all of our economies are so intertwined.

So certainly when it comes to something that could have a major impact on the Chinese economy we look to China to act responsibly and to deal effectively with any challenges.

What’s happening with Evergrande’s debt?

Evergrande has a huge pile of debt, reportedly more than A$400 billion.

Various media, such as Nikkei, have reported that Evergrande has missed a second bond payment in two weeks. It was reportedly meant to pay $46 million to investors, but those investors said that they didn’t receive the payment that was due.

Both investors reportedly said that they and other bondholders have started working with advisers to form a committee that would be able to jointly press their claims with the company.

There are reportedly $7.7 billion of Evergrande bonds that are maturing next year.

Not only that, but two Hong Kong property agencies are looking to sue the company regarding unpaid commissions, according to Reuters, to the tune of around $8 million.

Another Chinese real estate developer, called Fantasia, also didn’t make a US$206 million bond payment. Could that mean there’s more trouble ahead?

How is this impacting ASX 200 shares?

China is Australia’s largest economic trading partner, so there may be some indirect effects on the S&P/ASX 200 Index (ASX: XJO) if there were to be the problems that Mr Blinken could be foreshadowing.

Analysts have been considering the impact of a Evergrande failure on ASX 200 iron shares. Businesses like Fortescue Metals Group Limited (ASX: FMG), BHP Group Ltd (ASX: BHP) and Rio Tinto Limited (ASX: RIO) may have a closer connection to Evergrande than the ASX 200 as a whole. Evergrande happens to be one of the biggest individual users of steel (and therefore iron) in the world.

Some share prices of iron ore miners have fallen quite a bit in recent months. For example, the Rio Tinto share price has dropped by 23% in just two months.

Despite that fall, the broker UBS still thinks that Rio Tinto is a sell with a price target of $86. The rapid fall in the iron ore price makes the broker think that Rio Tinto’s profit in FY22 will be materially impacted. It also believes that non-Australian iron ore supply is going to increase in the coming years, with more steel scrap in China as well.

Time will tell what happens with the Evergrande Group crisis. It is interesting the US Secretary of State decided to make a comment about what’s going on.

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Motley Fool contributor Tristan Harrison owns shares of Fortescue Metals Group Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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