In recent weeks, we have witnessed how the Chinese company Evergrande’s inability to pay its debts has affected financial markets worldwide, sowing uncertainty and fear among investors, who are worried that another bubble might burst and trigger a global economic crisis like the one in 2008 following the collapse of Lehman Brothers.

Who is Evergrande?

Evergrande is a Chinese real estate company founded in 1996 and is currently one of the world’s largest companies by revenue, which has earned it a spot on the Global 500 list. It is currently China’s second-largest real estate company, with more than 1,300 projects in approximately 300 cities across China. Its business strategy is quite broad and includes, in addition to real estate projects, involvement in the construction of amusement parks and electric car factories; it even owns a soccer team in China’s top division.

In recent decades, China has experienced a boom in the real estate industry, a growth that has been financed largely through loans to real estate companies, which—in order to carry out their projects—have accumulated debt to unsustainable levels, as in the case of Evergrande.

Evergrande's liabilities currently total more than $300 billion—which, to put it in perspective, is three times Chile's national debt—and represent approximately 2% of the Asian country's GDP. This debt is now threatening the company's very existence and could lead to bankruptcy.

Given the size of this company and its level of debt, fears have taken hold about what might happen to the financial systems. Experts warn that this could not only occur in China but could also trigger a domino effect throughout the global financial market, thereby triggering a crisis similar to that of 2008, when the real estate bubble burst in the United States and Lehman Brothers collapsed. This fear is further heightened by the fact that among Evergrande’s numerous creditors are global financial giants such as BlackRock, UBS, and Ashmore.

At present, all eyes are on how the Chinese government will respond to this situation, although it was announced in recent days that Shengjing Bank, a state-owned commercial bank, will acquire 19.9% of Evergrande’s shares for a total of approximately USD 1.5 billion, which will alleviate the company’s liquidity problem.

But how does the crisis facing this global giant affect our country?

The hardest-hit economies in South America are estimated to be Chile, Peru, and Brazil, with the latter being less severely affected due to the diversification of its exports and buyers, whereas the other two are primarily exporters of raw materials used in construction, such as copper and iron, and rely on China as their main buyer.

According to the newspaper *Financiero*, construction activity accounts for 22% of China’s total demand for copper; therefore, the almost immediate consequence of this situation coming to light was a drop in the price of copper of nearly 3.07%, the largest decline in the past month, since the possible closure of this company significantly curtails the purchase of metals used in construction, such as copper.

Another industry affected by this news was the iron industry; the price of iron fell by 11.5%, dropping below $100 per metric ton. In Chile, one of the leading companies is CAP, the world’s largest steel producer, whose main buyer is China; consequently, this decline had a significant impact, causing the company’s stock price to fall and, in turn, affecting the entire Chilean financial market. This was reflected in a rise in the dollar, which increased by 3.79 pesos on the day the news about Evergrande’s debts broke. Combined with the pressures caused by the fourth withdrawal from pension funds, this has pushed the exchange rate above 800 pesos—a record high in recent years.

In the coming days, the Chinese government is expected to continue making announcements aimed at resolving this problem in some way, which would calm the financial markets, thereby averting a potential crisis like the one in 2008, restoring investor confidence in the markets, stabilizing commodity prices such as copper and iron, and strengthening Chile’s exchange rate position.