The End of Evergrande: A Blow to China’s Economy and Stability
The liquidation of Evergrande, the world’s most indebted property developer, by a Hong Kong court on Monday, January 29, 2024, is a landmark event that signals the end of an era for China’s real estate sector and poses serious challenges for the country’s economy and social stability.
Evergrande, which has more than $300 billion of debt, has been struggling to repay its creditors and investors amid a slowdown in China’s real estate sector, which accounts for about a quarter of the country’s GDP and affects many related industries, such as construction, steel, cement, and furniture. The company’s woes have also triggered widespread protests by homebuyers, suppliers, and employees, who fear losing their money and livelihoods.
The liquidation order came after Evergrande failed to present a convincing restructuring plan despite being given seven extensions by the court since June 2022. The judge, Linda Chan, said “it is time for the court to say enough is enough” and appointed provisional liquidators to take over the company’s assets and management. Evergrande’s executive director, Shawn Siu, said the decision was “regrettable” and claimed that the company would continue to operate in mainland China, where it is based. However, it is unclear how much authority and influence the liquidators will have over Evergrande’s operations in China, where the legal system is different from Hong Kong’s and the government may intervene to protect its interests.
The liquidation of Evergrande has raised concerns about the impact on China’s economy, as the company is a major employer and a key player in the housing market, which is a pillar of growth and a source of wealth and social stability for many Chinese people. The collapse of Evergrande could trigger a domino effect on other indebted developers, banks, and local governments, and cause a sharp contraction in the real estate sector, which could spill over to other sectors and regions. Moreover, the liquidation could erode the confidence and trust of investors, consumers, and the public in China’s financial system and regulatory framework, and undermine the credibility and legitimacy of the Chinese Communist Party, which has vowed to maintain economic and social stability.
The news also caused Evergrande’s shares to plunge by more than 20% in Hong Kong, where trading was suspended for the company and its subsidiaries. The stock market reaction reflects the uncertainty and anxiety surrounding Evergrande’s fate and its implications for the global economy, especially for emerging markets that rely on China’s demand and investment.
In conclusion, the liquidation of Evergrande is a historic event that marks the end of Evergrande’s meteoric rise and fall, and exposes the deep-rooted problems and risks in China’s real estate sector and economy. The liquidation also has significant consequences for China’s society and politics. The liquidation of Evergrande is not only a business failure, but also a turning point for China.
