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Evergrande Group, the world’s most indebted Chinese real estate developer, defaulted in 2021, throwing China’s real estate market into turmoil. Now, a Hong Kong court has ordered the company to liquidate. It will have ripple effects in China and possibly the rest of the world.
“I don’t know if this is the Lehman Brothers of today for China, but there are certainly a lot of similarities,” said Dennis, an M&A lawyer with experience in China at Mayer Ancovich & Scott.・Mr. Anković says. “If I worked for a U.S. company that exported products to China right now, I would be affected.”
The bankruptcy of Lehman Brothers was the largest bankruptcy filing in U.S. history and had a major impact on the 2008 global financial crisis.
Court orders liquidation for Chinese bankrupt Evergrande
July 24, 2023, Evergrande real estate complex in Yichang City, Hubei Province, China. (Costfoto/NurPhoto/Getty Images via Getty Images)
Evergrande has more than $300 billion in debt after borrowing aggressively to grow into one of China’s largest companies.
“The time has come for the courts to say enough is enough and order the company to liquidate,” Hong Kong judge Linda Chan said, fanning the flames of China’s underperforming economy. The economy is still trying to recover from zero-coronavirus lockdown policies, but is now dealing with a weak property market, a stock market near a five-year low, and youth unemployment rising to 21%. .
Anković said China’s economy is primarily driven by the real estate market, which could accelerate the collapse.
Evergrande in China: What you need to know
“About a third of China’s economy is based on real estate,” he said. “In the United States, it’s about 16% or 17%. If a third of my economy is based on real estate, and real estate is in the tank, I think that’s a very serious problem.”
China is the world’s fastest growing economy and a pioneer in foreign business investment, accounting for approximately 20% of global GDP. But if China is unable to contain the spillovers, its economic future could be uncertain and potential investors could look elsewhere.
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“If you’re a foreign company, whether it’s Japan or the United States, are you going to invest heavily in China?” Ankovic said. “I think chasing more bad news is bad news.”
