Evergrande's fiasco could damage the global economy

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All eyes are on China's Evergrande, the heavily-indebted real estate conglomerate that's become a market obsession after global investors tuned in to its mounting problems this week.
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London (CNN Business)

What's happening: The company faces a crucial test on Thursday , when it has a deadline to pay nearly $84 million worth of interest on a bond. My CNN Business colleague Laura He, who's tracking the story closely, reports that it's not clear yet whether Evergrande will make that payment. It had not commented by the close of trading in Hong Kong.

Global markets have been rattled by the risk that one of China's biggest developers could collapse. But the concern may be less about financial contagion, and more about the broader effects on the world's second biggest economy, which was already slowing.

"China has the means to contain the fallout from the Evergrande situation," Berenberg chief economist Holger Schmieding wrote in a note to clients Thursday. "However, China is storing up trouble for the future as trend growth slows and as its leaders impose an increasingly authoritarian and controlling regime."

Remember: Worries about the pace of China's economic growth have been building in recent months. An official survey of manufacturing activity fell to 50.1 in August from 50.4 in July. That was just above the 50-point mark indicating expansion rather than contraction, but still the slowest rate of growth since the start of the pandemic. Retail sales have also struggled, increasing just 2.5% last month compared to a year earlier.

Chinese authorities have partially attributed slower growth to Covid-19 outbreaks and flooding, which stopped people from traveling and caused them to hold off on summer spending. Economists, however, are increasingly convinced the loss of momentum could persist.

One big reason is China's property sector. New housing projects, as measured by floor space, fell 3.2% during the first eight months of the year.

On the radar: A tightening of credit conditions as the government tries to ease…
Julia Horowitz, CNN Business
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