It is unclear whether Chinese authorities will recognize the Hong Kong court’s ruling Monday and allow international creditors to seize assets of the company — such that they are.
The property behemoth has been scrambling to finish building apartment complexes around the country — where the homes have been mostly paid for in advance — and smaller contractors have collapsed as China’s property market has come under increasing strain.
Once China’s largest seller of real estate, Evergrande has been trying to avoid formal bankruptcy since 2021, when it defaulted on $330 billion in debt and sent shock waves through global markets.
The company’s travails track the rapidly declining health of China’s property sector, which accounts for about a fifth of its economic growth — and China’s prospects in general.
China recorded a gross domestic product growth of only 5.2 percent last year — the slowest in three decades, excluding the three initial pandemic years — and its stock market has been performing particularly badly.
About $6 trillion has been wiped off the value of Chinese and Hong Kong stocks in the past three years, underscoring investors’ fears about China’s economic future.
The ruling raises questions about how far Chinese authorities are willing to go to protect the interests of international creditors.
The Chinese government has been involved in a tricky effort to tackle real estate debt without worsening a slump in the sector that could slow the tepid pandemic recovery.
Evergrande’s problems have been decades in the making.
Starting in the 1990s, China’s huge property developers had easy access to bank loans and could aggressively expand using a borrow-to-build model that took advantage of surging demand for homes and local government reliance on land sales for income.
A shift in government policy in 2020 turned off funding flows to developers that for decades had taken out huge loans to rapidly expand, using new projects to keep borrow and building.
Evergrande was left on the verge of collapse, in a crisis that many saw as marking the end for China’s housing boom. It also fueled concerns that foreign creditors would be shortchanged in Beijing’s efforts to contain the crisis.
To avoid the effects of the company’s more than $300 billion pile of debt rippling through the economy, Chinese authorities opted for what analysts called a “controlled demolition” — essentially managing the corporation through a gradual collapse.
Since then, the company has continued to limp on, posing a continual headache for policymakers trying to restore confidence in the real estate sector.
The top priority for the government has been completing the hundreds of unfinished apartment complexes across the country and placating tens of thousands of angry homeowners who paid upfront.
In 2021, some jurisdictions in China agreed to recognize liquidation rulings from Hong Kong, but each case requires a separate application, and the deal has only been applied five times since then.
If creditors outside the country are unable to recoup some of their losses, it would be another blow to confidence in China’s business environment.
Foreign direct investment in China’s economy fell by 8 percent last year, the first decline since 2012.
