Meet the most exposed Latin American economies after the possible collapse of the China real estate market

German Centeno
7 min read
Meet the most exposed Latin American economies after the possible collapse of the China real...

There is no doubt that the company Evergrande China is one of the most important real estate companies in the world, but also, it is one of the most indebted. This is how at the beginning of this week, the financial inconveniences of this gigantic Chinese company have shaken the markets of real estate of the world.

All this has generated a great concern in the entrepreneurs of this branch, who show a concern after knowing that the company is on the verge of bankruptcy, something that would undoubtedly affect this market worldwide.

The company Evergrande Real Estate Group, takes place today around 1,300 projects, all distributed in more than 290 cities in China. However, the assets thereof are not limited to real estate development. Therefore, its business encompass everything that is the manufacture of food and beverages, manufacture of electric vehicles to the patrimonial management.

It also owns one of the most famous soccer teams in the country as it is Guangzhou FC. Despite all this, the company has been having inconveniences to comply with the payments of its debt, which is currently estimated by more than US $300 billion.

Evergrande and its involvement in the global financial system

Meet the most exposed Latin American economies after the possible collapse of the China real...

It is believed that the bankruptcy of a company so great and so important in the real estate sector as it is Evergrande, could not only generate a great impact on China's economy, but could also reach to affect the financial system worldwide, including Latin America.

Many economist experts have come to relate this fact with something similar to what happened in the 200th crisis, which was generated after going to Banking Rota The Bank of Inversiones Lehman Brothers, so A large part of the real estate market could be very affected.

However, there are other analysts who do not see this serious fact or at least they have not wanted to compare it with the bankruptcy of the US bank. Reason why they say that it will not greatly affect the financial sector, but of what if there is no doubt, it is that if Evergrande collaps, the real estate sector of Latin America No unharmed.

Although the Chinese company has not yet been declared bankrupt, this possible fact has already affected the raw material markets, a very important sector of which it depends on the Economy of Latin America. The price of copper was one of the most affected after this possible news, since most investors are concerned that metal demand is seriously affected if the projects of this company stop.

In the same way, the price of crude oil and the most important bags of Latin America have also been affected, so you have placed to think many economists on all the consequences that can be generated If this rumor becomes a reality.

Latin American countries that could be more affected

Meet the most exposed Latin American economies after the possible collapse of the China real...

According to several analysts have estimated that some of the countries that could be more affected if Evergrande collapses are Chile, Brazil and Peru.

Keep in mind that Chile is one of the countries with the highest export of iron and copper of Latin America, while Peru is also widely dedicated to export copper. On the other hand, Brazil is considered one of the largest iron producers worldwide.

Clearly, the economy of these three countries could be seriously affected if the largest company of China stops its work. Highlighting that both copper and iron are materials that are used for constructions.

On the other hand, the renowned analyst Luciano Rostagno, from Banco do Brasil, has also expressed concern about this news. Likewise, he has remembered that both Peru and Chile are large exporters of copper to China, so their economies can be affected.

The London Metal Exchange was also affected by this news, since by knowing the possible collapse of one of the most great Chinese real estate, its bag had a drop of 3.07%. While the crude Brent and the West Texas intermediate had a fall of 2%.

Concern in America regarding exports

Meet the most exposed Latin American economies after the possible collapse of the China real...

Brazil without a doubt is one of the most concerned countries with this news, since they stand out for exporting too much iron to China, so the closure of that company will decrease its income remarkably. Likewise, it should be noted that China is the main Iron Buyer for Brazil.

Despite all this, the analyst Luciano Rostagno, has assured that Brazil will not be the most affected in the region, since it considers that the exports of their country are very well diversified, so they not only export Iron, but also crude oil and soybeans, which are very important in the country's exports.

For Peru and Chile, copper exports means most of its negotiations, so it is considered that both countries could suffer this closure even more. In the case of Peru, total exports represent more than 30% of GDP, while in Chile it represents 14%.

China stands out for being an important business partner

Meet the most exposed Latin American economies after the possible collapse of the China real...

In 2020 at least 33% of Brazilian exports were destined for China, which makes it clear the great importance that China has in the Brazilian market. According to the US Bank reports Wells Fargo, the stock market and the currency of this country depend on the Chinese economy, so they are highly vulnerable to Chinese economic de-stability.

In the same way, it has been known that the possible fall of the Chinese real estate company could also affect the economy of other sectors of the Chinese country. So many countries of the world would be affected once this news is known officially.

It should be noted that not only Peru, Chile and Brazil will be affected by this news, but that countries such as Venezuela and Colombia, who depend to a large extent on their oil exports towards Pekin, they will also receive serious economic consequences.

A possible response from China

Meet the most exposed Latin American economies after the possible collapse of the China real...

After several days of concern, this September 22, the news was known that the possibilities of which the Chinese company Evergrande is collapsed or by we have indicated OGAZ, who has commented as follows: “Chinese Bank has injected liquidity in the market, this was what generated concern in international markets. In the same way, an agreement has been reached to cancel a bonus in Yuan that thursday was defeated”.

After knowing this news, some prices of minerals have recovered their value. So much so that copper has increased by 3%. The payment that would be made would be being around US $35.9 million, great relief for most investors. Despite this, Evergrande must pay on Thursday interests in 83 million dollars for a foreign bonus.

Consequences that would bring a collapse of Evergande

Some analysts are not so favorable with the consequences that this bankruptcy could bring to the world market, so they ensure that the prices of raw materials could be very affected. According to Janus Henderson, British Asset Management Analyst He has assured that “a slowdown in raw material prices is currently being seen as the main response to the decline of the Growth that was really expected in China”.

“Iron, one of the key components of steel, fundamental raw material, could be seen as its price has been seriously affected” HA added Janus Henderson. To all this, the analyst believes that it is very likely that other raw materials used for construction will also experience a fall next year.