How China's real estate crisis can spread to other markets and commodities

Chinese real estate companies are still under much pressure as the sector's stock prices took another turn for the worse. Notably, Evergrande's shares, the country's most prominent developer, fell 21% on Monday after the company cancelled important talks with creditors. As market worry grows, China now faces the possibility that the current crisis could spread to other areas, especially commodities.

The worst daily drop for Chinese property stocks will happen in 2023.

China's real estate market never seems to get a break. Monday was the worst day for stock prices in the sector since 2023. Evergrande led the way with a 21% drop after cancelling important talks with creditors at the last minute.

The country's property problem started in 2020 when its most prominent developers were stressed because of new rules about how much debt they could have. The situation quickly spread to well-known real estate companies like Kaisa Group, Sinic Holdings, Sunac, and Evergrande in Country Garden.

This week, Evergrande's mainland unit said it could not pay off an onshore bond. This added to the doubt about the company's future as its restructuring plan with offshore creditors teeters. Bloomberg reported on Monday that the developer cancelled important meetings with creditors at the last minute, saying it needs to rethink its restructuring plan. Members of its money management unit were also arrested, and the developer did not meet the requirements set by regulators to be able to sell new bonds.

The worsening market problem has also been putting much pressure on Chinese stocks. Country Garden, Logan Group, and China Aouyan had significant drops this week.

Risks of spreading are growing, and the commodity market is first in line.

But that is not the end of China's economic problems. There are new chances of more spreading issues because of the growing chaos.

In other words, the current crisis and the worsening mood of investors could spread to other parts of the Chinese economy, especially the commodities market. The new price changes show how worried people are. On Monday, the price of iron ore fell by more than 4%.

The drop is happening when regular demand from China has been vital in the past. About 70% of the world's seaborne iron ore is bought by the world's second-largest economy, but this trend is now in danger as risks rise. Because of the chaos, Chinese companies have also stopped buying more steel.

Last month, the Chinese government took steps to help the national stock market and fix its problems. But these measures have yet to do much to stop the crisis from worsening.