China Evergrande, one of China’s largest developers, has been ordered to dismantle itself after nearly two years of financial struggles. The company’s collapse in 2021 sent shockwaves through China’s housing market and contributed to an economic downturn. With more than $300 billion in debt, Evergrande’s liquidation has been compared to the bankruptcy of Lehman Brothers in 2008.
The latest development in Evergrande’s saga came as a Hong Kong judge ordered the company’s liquidation and appointed Alvarez & Marsal, a firm specializing in bankruptcy cases, to manage the unwinding process. The firm’s priority is to retain and restructure as much of Evergrande’s business as possible while working with creditors to minimize disruption and help them recoup some of their investments. However, the process is expected to be complex and may involve mainland China courts.
Under the current circumstances, the Chinese government looms over the entire process, as it has control over foreign investors within China. Beijing’s involvement in the fate of Evergrande is crucial, especially considering the deep slowdown in home sales that began when the government restricted the real estate industry’s borrowing activities. The impact of Evergrande’s liquidation extends beyond the company itself. It will serve as a litmus test for foreign investors in Chinese companies and a trial of China’s legal system and its willingness to accept the rule of law in Hong Kong.
In response to the situation, David Goodman, director of the China Studies Center at the University of Sydney, stated, “Its crisis is symptomatic of property companies and the property market generally… We should care because the Chinese economy is at the heart of the world economy and even small economic shocks can destabilize it.” This opinion reflects the global significance of Evergrande’s downfall and the potential implications for the world economy.
In conclusion, China Evergrande’s liquidation will have far-reaching implications for the real estate market and the broader economy, and its progress will be closely watched by investors and governments alike.