Proceedings of the 2022 International Conference on Urban Planning and Regional Economy(UPRE 2022)

How Evergrande Defaulted: Positive Feedback Mechanism Subject to the Debt-Fueled Model in Chinese Real Estate Market

Taking Qaidam Basin as an Example

Authors
Bochao Mahmybm1@nottingham.edu.cn
University of Nottingham, Ningbo, China
Corresponding Author
Available Online 16 May 2022.
DOI
https://doi.org/10.2991/aebmr.k.220502.075How to use a DOI?
Keywords
positive feedback mechanism; debt default in real-estate market; debt-fueled business model
Abstract

Evergrande is selected as the research object to analyze the rationale of the default of Chinese real estate enterprises in 2021. This paper fills the research gap of the mechanism triggering default of real estate enterprises by interpreting the drawback of their debt-fueled business model and positive feedback phenomenon in the real estate market. The positive feedback is a self-reinforcing process of increasing returns which amplifies the effect of certain factors in the same direction and yields the accumulative causation. The business model under different market circumstances will engender virtuous or vicious positive feedback. When the housing market booms, there is the virtuous cumulative causation of high leverage ratio and high profit. In contrast, the vicious cycle of deleveraging and liquidity crisis will become self-reinforcing when the sales revenue is depressed or the credit is contracted, for the indebted firm had to sell the asset. The paper argues that due to the debt-fueled business model, Evergrande was fallen into the vicious positive feedback of deleveraging and liquidity crisis to repay the debt under the macro-control policy.

Copyright
© 2022 The Authors. Published by Atlantis Press International B.V.
Open Access
This is an open access article distributed under the CC BY-NC 4.0 license.

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Volume Title
Proceedings of the 2022 International Conference on Urban Planning and Regional Economy(UPRE 2022)
Series
Advances in Economics, Business and Management Research
Publication Date
16 May 2022
ISBN
978-94-6239-578-7
ISSN
2352-5428
DOI
https://doi.org/10.2991/aebmr.k.220502.075How to use a DOI?
Copyright
© 2022 The Authors. Published by Atlantis Press International B.V.
Open Access
This is an open access article distributed under the CC BY-NC 4.0 license.

Cite this article

TY  - CONF
AU  - Bochao Ma
PY  - 2022
DA  - 2022/05/16
TI  - How Evergrande Defaulted: Positive Feedback Mechanism Subject to the Debt-Fueled Model in Chinese Real Estate Market
BT  - Proceedings of the 2022 International Conference on Urban Planning and Regional Economy(UPRE 2022)
PB  - Atlantis Press
SP  - 424
EP  - 429
SN  - 2352-5428
UR  - https://doi.org/10.2991/aebmr.k.220502.075
DO  - https://doi.org/10.2991/aebmr.k.220502.075
ID  - Ma2022
ER  -