Hong Kong CNN –
Evergrande Group, the world's most indebted real estate developer, has been ordered to liquidate by a Hong Kong court, a massive setback for China's struggling real estate sector that could impact the world's second-largest economy.
The dissolution order, issued by the city's High Court on Monday, came after the troubled Chinese real estate giant and its foreign creditors failed to reach an agreement on how to restructure the company's massive debts.
The court said it would hold another hearing in the afternoon, which may lead to the appointment of an insolvency administrator for Evergrande.
The troubled company borrowed heavily and defaulted in 2021, triggering a massive housing crisis in the Chinese economy, the effects of which continue to be felt. The Shenzhen-based developer with total liabilities of The company, which had assets of 2.39 trillion yuan ($333 billion) at the end of June last year, filed for bankruptcy in New York in 2023.
Court-appointed liquidators will manage the company and sell its assets to pay off its debts. Once the process is complete, the company, previously China's second-largest real estate company, will no longer exist.
“Evergrande's offshore liquidation was largely expected, but it is still a significant setback for an already struggling onshore real estate sector that will further deteriorate investor sentiment,” said Brock Silvers, chief investment officer at Hong Kong-based Kaiyuan Capital.
Chinese stock markets have suffered staggering losses in recent years. Since their recent highs in February In 2021, around $6 trillion – about twice the UK's annual economic output – was removed from the value of Chinese and Hong Kong stocks.
Aside from a record decline in the real estate sector, investors have been concerned about a host of economic problems facing China, including deflation, debt, a falling birth rate and a shrinking workforce, as well as Beijing's shift to ideology-driven policies that have unsettled the private sector and spooked foreign companies.
Evergrande, the poster child of China's real estate crisis, unveiled a billion-dollar restructuring plan last March.
But that plan collapsed in September after Chinese authorities said the company's founder and chief executive, Xu Jiayin, was suspected of “crimes” and was arrested by police.
The worsening real estate crisis has dealt a severe blow to the Chinese economy.
China's robust growth has been fueled for decades by a real estate boom fueled by a growing population and rapid urbanization. The industry generated up to 30% of the country's GDP and more than two-thirds of China's household wealth is tied up in real estate.
But the sector ran into trouble after the government curbed excessive borrowing by developers in 2020 to cool the property bubble. Since then, dozens of Chinese developers have defaulted on their debts.
Since then, the industry has become a drag on the broader economy, which is struggling with a slow recovery from three years of pandemic lockdowns and a range of headwinds, from record-high youth unemployment to increasing financial strains on local governments.
In December, new home prices fell by the most in almost nine years, and real estate investment fell 9.6% in 2023 compared to a year earlier, marking the second consecutive year of declines.
This is a developing story and will be updated.