As Chinese real estate behemoth Evergrande reportedly prepares for a government-backed mega-restructure, here is an explainer on what Beijing's bid to limit a contagion could mean for the wider economy:
The Chinese government sparked a crisis in the property industry when it launched a drive last year to curb excessive debt among real estate firms as well as rampant consumer speculation.
Evergrande, a real estate giant with a presence in over 280 Chinese cities, was the most prominent developer to pay the price for Beijing's clampdown.
More than $300 billion in debt, it teetered for months on the edge of default, returning each time from the brink thanks to a last-minute repayment.
But according to Bloomberg it has now missed a 30-day grace period on overdue coupon payments worth $82.5 million, while agency S&P Global Ratings has said a default now "looks inevitable".
After Evergrande warned last week it may not be able to meet its financial obligations, the local government in Guangdong -- where the firm is headquartered -- summoned billionaire chairman Hui Ka Yan, and said they will send a "working group" to the company.
Analysts said this moment signalled the formal start of the giant's debt restructuring -- a process that will likely take years.
Signs that the state is taking a bigger role in Evergrande's future have eased investor concern of a disorderly collapse.
"It's pretty clear that the state is seriously involved in managing the situation," Shehzad Qazi, managing director of data analytics firm China Beige Book, told AFP.
It will "ultimately be a 'controlled demolition'," Qazi added.
But bondholders are likely to face deep haircuts, and even if restructuring provide some answers, the broader impact of Beijing's sweeping property crackdown remains to be seen.
At least 10 property firms have defaulted on bonds since concerns started to grow over Evergrande in June.
Hong Kong-listed Sunshine 100 defaulted after missing a deadline to make $179 million in payments this week, and Kaisa failed in a debt swap to buy crucial time for raising cash.
Property firms made up 36 percent of the $10.2 billion of offshore bonds that Chinese borrowers defaulted on this year, Bloomberg said.
The People's Bank of China said last week that Evergrande's problems came from its own "poor management and blind expansion" in a bid to reassure investors.
Regulators have said they would safeguard the rights of homebuyers, while the banking and insurance authority stressed the need to "focus on satisfying mortgage needs for first homes."
With the local government sending a working group to the firm, the Evergrande crisis has drawn parallels with government intervention in other indebted companies, notably aviation conglomerate HNA Group.
HNA's restructuring did not cause investor panic -- although Evergrande's higher profile means this time will likely prove a bigger challenge.
But whatever happens to Evergrande, Beijing's broader clampdown has already had a major impact on the property sector and deepened worries over key firms' financial health, bringing home sales and prices down.
A slowdown in the Chinese real estate sector, which accounts for a significant proportion of the country's economic output, could have ripple effects on global growth.
Evergrande's woes have rocked stock markets -- and the real estate sector makes up much of distressed dollar-denominated debt internationally.
But an Evergrande default has long been expected, and fears over a "Lehman moment" -- a reference to the Wall Street titan whose collapse prompted panic worldwide during the 2008 global financial crisis -- have already been dismissed.
FAQs
In short, Evergrande's downfall is unlikely to spark a contagious wave and lead to massive bank failures. However, its negative shock on the property sector—and on the Chinese economy—as well as its damage to Evergrande's corporate creditors adds to the obstacles facing China's economic rebound.
What are the potential ramifications of Evergrande defaulting for the Chinese economy? ›
Evergrande's default represents a turning point in the Chinese real estate industry and fueled a liquidity crisis in the sector. Since then, over 50 developers have defaulted on debts, and thousands of people have lost real estate jobs.
What is the conclusion of Evergrande Crisis? ›
A Hong Kong court has ordered the liquidation of the Evergrande Group, China's giant and massively indebted real estate developer, after the company was unable to restructure the $300 billion it owed investors. Just six years ago, Evergrande was riding high, preselling apartments to middle- and upper-income Chinese.
What is happening with Evergrande in China? ›
And one of the largest property developers in mainland China is a huge part of the story. Evergrande is drowning in about $300 billion of debt. And after months of attempting to restructure, one of its entities is now being forced to liquidate.
What happens if Evergrande is liquidated? ›
WHAT HAPPENS AFTER THE COURT ORDERS EVERGRANDE LIQUIDATED? Once a liquidation order is issued, a provisional liquidator and then an official liquidator will be appointed to take control and prepare to sell the developer's assets to repay its debts.
How China plans to avert an Evergrande financial crisis? ›
Control of the banking system gives Beijing the tools to stop a broader collapse, officials believe, while censorship and police powers can stifle protests.
Why are Evergrande's debt problems in China? ›
Once China's top-selling developer, Evergrande's financial crisis became public in 2021 and since then it and a string of its peers have defaulted on their offshore debt obligations amid slowing home sales and fewer new avenues for fundraising, triggering fears of wider contagion that could spread to the country's ...
How Evergrande affected the global economy? ›
Evergrande's fate has broader implications for international businesses in China. Foreign investors have pulled billions out of the country, as President Xi Jinping tightens his grip on the economy even while officials publicly assert that China is open for business.
What China's Evergrande crisis means for the world? ›
A Hong Kong court ordered the liquidation of China Evergrande, the world's most indebted property developer. Evergrande has assets of about $245 billion, but owes about $300 billion. Its demise is a "controlled collapse," but still raises systemic risk and will hurt investors, says an analyst.
How bad is the Evergrande crisis? ›
China Evergrande, once among the country's largest property developers, is the world's most indebted company — with more than $300 billion in liabilities. Despite months of delays, Evergrande was still not able to make concrete plans of restructuring, Hong Kong Justice Linda Chan reportedly said in court on Monday.
However, Evergrande's creditors also include Chinese homebuyers and firms along the supply chain of property development, such as construction companies, appliance makers, and home decoration firms. Evergrande's bankruptcy exacerbates the problem of weak investor and consumer confidence in the Chinese economy.
Who is the world's most indebted property developer? ›
A court in Hong Kong has ordered the winding up of Evergrande Group, the world's most indebted property developer, dealing another blow to investor confidence as China's ailing real estate sector continues to weigh on its economy.
Will Evergrande ever recover? ›
A Hong Kong court has ordered the liquidation of China Evergrande. But experts say there may be little to recover. One of China's top developers, Evergrande has been in a liquidity crisis since 2021.
Why is the Chinese economy in trouble? ›
Challenges multiply after the country's years of rapid growth. China's economy is at a turning point. An old economic model underpinned by heavy investment in infrastructure and real estate is crumbling. Growth is slowing and prices are falling, raising the specter of a Japan-style slide into stagnation.
What Chinese company is on the verge of collapse? ›
Evergrande was left on the verge of collapse, in a crisis that many saw as marking the end for China's housing boom.
Who Evergrande owes money to? ›
HONG KONG (AP) — A Hong Kong court ordered China Evergrande, the world's most heavily indebted real estate developer, to undergo liquidation following a failed effort to restructure $300 billion owed to banks and bondholders that fueled fears about China's rising debt burden.
Why is Evergrande defaulting? ›
Evergrande's default on repayments to international investors in 2021, after Beijing began cracking down on excessive borrowing for real estate, sent shockwaves through China's property sector, which accounts for an estimated 15-30 percent of the economy.
Who does Evergrande owe money too? ›
The majority of the money Evergrande owes is to creditors in China, including ordinary homeowners, suppliers and banks.
How did Evergrande get into so much debt? ›
It borrowed to build, then repaid the debt when home buyers invariably snapped up property. As Evergrande grew, and its apartment buildings mushroomed across China, the amount of debt also ballooned. It branched out from real estate.
