Evergrande’s Downfall: What Led to the Delisting of China’s Property Giant?

Evergrande’s Fall: A Cautionary Tale

Evergrande, once China’s biggest property developer, has officially been delisted from the Hong Kong stock market. This marks the end of an era for a company that was once worth over $50 billion. The collapse stemmed from massive debts and bad financial decisions, leading experts to view the delisting as both inevitable and final.

Dan Wang, a political risk analyst, shares a stark truth: once a company like Evergrande is delisted, there’s typically no way back. This giant’s fall has sparked a broader crisis in China’s economy.

The Rise and Fall of Evergrande

Just a few years ago, Evergrande was celebrated as a success story of China’s rapid growth. Its founder, Hui Ka Yan, was once one of the richest individuals in Asia. However, his fortune has dropped from about $45 billion in 2017 to under $1 billion today. In 2024, he faced serious legal scrutiny for misleading financial practices, including inflating company revenues.

Evergrande had around 1,300 projects underway across 280 cities, but mismanagement caught up with it. The company relied on $300 billion in borrowed funds, making it the most indebted property developer globally. In response to regulatory changes introduced by Beijing in 2020, Evergrande began slashing property prices to attract buyers, but it was too little, too late.

Liquidation proceedings began in January 2024 after Evergrande failed to propose a solid plan to tackle its massive debts. As of now, its liabilities are around $45 billion.

Impact on the Chinese Economy

China’s economy is grappling with several challenges, including rising government debt and weak consumer spending. However, the crisis engulfing the property sector is causing the most damage. The real estate industry constitutes about a third of China’s economy, making its troubles widespread.

Experts like Professor Shitong Qiao emphasize that the collapse has led to massive layoffs in the real estate sector, with many employees facing pay cuts. Households are feeling the pinch too; average housing prices have dropped by at least 30%. This decline means families are less likely to make significant purchases, further stifling the economy.

To counteract this downturn, the Chinese government has introduced various measures aimed at reviving the property market. Despite these efforts, growth has slowed considerably, falling from over 10% a decade ago to about 5% now—strong by Western standards but insufficient for China.

Is the Crisis Over?

It’s unlikely that the property crisis is over. Other developers are still struggling. Recently, China South City Holdings was ordered into liquidation, becoming the largest developer to fold since Evergrande. Meanwhile, Country Garden is negotiating with creditors over $14 billion in debt.

Experts warn that many more firms could face similar fates. While some positive steps have been taken by Beijing, these do not guarantee a quick end to the crisis. Analyst Jackson Chan notes that conditions might improve, but any recovery is expected to be slow and somewhat weak.

Goldman Sachs has predicted that property prices will continue to decline until at least 2027. After assessing the situation, it’s evident that the Chinese government will not provide a direct bailout for struggling developers. Instead, there’s a focus on transitioning the economy towards high-tech industries like renewable energy and robotics, suggesting a significant shift in priorities.

As we reflect on Evergrande’s downfall, it serves as a critical reminder of the risks associated with over-leveraging in business. With an uncertain future ahead, many are left wondering what the next chapter for China’s economy will hold.

For more insights on the current state of China’s economy, visit the World Bank’s Economic Overview.

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