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Evergrande bankruptcy adds to China property crisis

The saga of Evergrande, a Chinese property giant, has finally come to a head with a landmark ruling from a Hong Kong judge. The company has been ordered to liquidate after a two-year struggle to avoid repaying its creditors, making it the most indebted real-estate developer in the world with over $300 billion in liabilities.

This ruling has significant implications not only for Evergrande and its creditors, but also for the broader Chinese property market. Evergrande’s initial signs of weakening in mid-2021 triggered a crisis in China’s property sector, leading to a wave of defaults and restructurings among listed property developers. This, in turn, has caused a 6.5% decline in property sales, deeply impacting the wealth of the Chinese population, which is heavily invested in real estate.

The hope was that a successful restructuring of Evergrande could lead to a slow but steady revival of the market. However, as deadlines for a restructuring plan came and went, and the proposed plan failed to impress investors, the situation only grew more dire. Bondholders rejected Evergrande’s proposal, and tensions escalated to the point that Evergrande’s chairman was detained by Chinese authorities.

The fallout from Evergrande’s collapse is not limited to China. The erosion of confidence in Chinese policy is also affecting Hong Kong, which has long served as a gateway for foreign investors into China. However, Hong Kong’s legal system, based on common law, is not guaranteed to hold sway over Evergrande’s assets in mainland China.

The appointment of a liquidator by the Hong Kong court is a significant development, but it also raises questions about the enforcement of the ruling in mainland China. With most of Evergrande’s assets located there, the liquidation process is likely to be long and contentious, potentially disturbing public order and undermining Beijing’s efforts to restore confidence in the market.

While the latest ruling leaves room for potential restructuring, the road ahead is uncertain. Evergrande is expected to produce a new plan, but the liquidator’s involvement may lead to a deal that excludes many Chinese assets. Given that Evergrande’s main assets are in China, this could pose a major challenge.

In conclusion, Evergrande’s liquidation marks a new low in China’s property crisis, but it is unlikely to be the end of the challenges facing the sector. As the situation continues to unfold, it will be important to monitor developments and their potential impact on both Chinese and global markets.

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