A court in Hong Kong ordered on Monday that a top Chinese developer with hundreds of billions in liabilities is to be liquidated, possibly inciting even more foreign capital to flee the struggling country and disrupting global investment, according to Reuters.
The world’s most indebted developer, China Evergrande Group, and its more than $300 billion in liabilities are to be liquidated after the company was unable to create a restructuring plan despite being told to do so over two years ago, according to Reuters. The liquidation could lead even more foreign investors to pull funds from the Chinese market, sending shockwaves through the global economy as capital flees the struggling Chinese financial system. (RELATED: China Continues To Dodge Responsibility For Supplying America’s Fentanyl Crisis Ahead Of High-Level Talks With US)
“It is time for the court to say enough is enough,” Linda Chan, the judge who ruled on the decision, said on Monday, according to Reuters. Chan appointed global consulting firm Alvarez & Marsal to run the liquidation to protect value for creditors, as Evergrande chairman Hui Ka Yan is under investigation for suspected crimes.
China’s largest developer headed into liquidation with ($333 billion in debt)…Evergrande’s $17 billion in USD bonds trading below a penny.:equity was halted at 16c. Total system wipeout as its CEO is also under police control. China’s so-called ‘miracle’ was just a mirage.#China pic.twitter.com/nqtJaipqjS
— 🇺🇸 Kyle Bass 🇹🇼 (@Jkylebass) January 29, 2024
The liquidation could increase already high projections of foreign capital outflows in China for 2024, with the Institute of International Finance estimating that $65 billion in foreign cash will exit the country’s economy in the year. The projected losses are far greater than the already huge outflow recorded in 2023, with $31 billion leaving the country.
The collapse of Evergrande comes amid a broader Chinese real estate crisis that started following the COVID-19 pandemic, with companies that are responsible for around 40% of homes in the country defaulting on their debt since 2021. The country also saw a huge spike in property foreclosures in 2023, reaching a record of 796,000, up 36.7% year-over-year. (RELATED: China Unveils Latest Plan To Boost Ailing Economy)
BREAKING: A Hong Kong court has ruled that Evergrande, China’s largest real estate developer, must be liquidated.
The stock is now down another 20% today on the news and trading has been halted.
Evergrande is now considered the most indebted property developer in the world.… pic.twitter.com/2ixwMwgB2o
— The Kobeissi Letter (@KobeissiLetter) January 29, 2024
The debt-laden real estate sector was once a boon for the emerging Chinese economy but has since become a drag on growth, with the country being unable to resume rates that were seen before the COVID-19 pandemic. The Chinese economy grew at a rate of 5.2% in 2023, which was below expectations, while pre-pandemic growth rates were above 6%, with factors like urban disposable income and consumer confidence having poor performances, as well.
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