China’s Debt Crisis Deepens As Evergrande Ordered Into Liquidation. The real estate giant owes over $300 billion
Hong Kong’s High Court has ordered the liquidation of China Evergrande Group, once the country’s top-selling property developer, after its failure to restructure over $300 billion in debts, plunging China further into economic uncertainty.
Judge Linda Chan stated on Monday that Evergrande’s inability to put forward a viable proposal to repay creditors alongside its insolvency left her no choice but to wind up operations.
Evergrande Default Sparks Fears For China’s Economy
Evergrande’s collapse has fueled concerns over the stability of China’s real estate sector, which accounts for around 30% of the country’s GDP. The company’s default on its $19 billion debts in 2021 was one of China’s largest ever corporate failures.
Once China’s most valuable developer, Evergrande grew rapidly on easy credit and presales. But Beijing’s 2020 crackdown on leverage in the property industry left Evergrande struggling to repay creditors and complete projects.
Developer’s Assets Dwarfed By $300 Billion Debts
Evergrande owes around $25 billion to foreign institutions from New York to London. However, its debts of over $300 billion dwarf its assets of $240 billion.
Over 1.5 million homebuyers also face uncertainty over whether their paid-for apartments will be completed. So far, Beijing has prioritized ongoing housing construction over creditor repayment.
Evergrande Chairman Detained As Restructuring Falters
The developer’s billionaire founder, Hui Ka Yan, was detained in September 2022 on allegations of financial crimes, severely hampering restructuring efforts.
With Hui and other top executives under investigation, Evergrande has struggled to negotiate with international creditors. Lawyers for creditors say the company failed to properly engage despite repeated extensions.
Liquidation Raises Concerns Over Foreign Investor Treatment
The liquidation order has sparked worries foreign creditors may not recoup losses if unable to access Evergrande’s remaining assets, predominantly in China.
So far, Beijing has contained wider economic contagion. But recurring corporate failures have damaged investor confidence, with foreign investment into China dropping 8% last year.
China’s Property Crisis Threatens Post-Pandemic Recovery
Alongside Evergrande, several major developers have defaulted on debts, halted projects and seen sales plummet.
Once a pillar of China’s economic boom, property is now dragging on growth. Prices and transactions have slowed dramatically despite government stimulus efforts.
The industry’s woes have contributed to China’s declining economic prospects. GDP grew just 3% last year, missing the official target.
Evergrande’s collapse is the biggest corporate failure thus far in China’s property crisis. While Beijing has tools to prevent wider financial contagion, the ongoing housing market slump will continue weighing heavily on China’s struggle to stabilize growth post-pandemic.
