Evergrande's Collapse: The Untold Story of China's Real Estate Reckoning

The collapse of Evergrande, one of China’s largest property developers, marks a significant moment in global economics as its shares were recently delisted from the Hong Kong stock market. This follows a court order for the company to be wound up, after it was already suspended from trading in January 2024. The troubles began when Evergrande’s founder, Hui Ka Yan, was fined $6.5 million and banned from the capital markets for overstating company revenues by a staggering $78 billion. The company, which had declared default in 2021, has rapidly deteriorated from its peak as one of China’s most powerful conglomerates, having over 1,300 projects across 280 cities at its height.

Founded in 1996, Evergrande’s empire expanded aggressively by borrowing over $300 billion, encompassing sectors from wealth management to electric vehicle manufacturing and even owning a stake in the prominent football team, Guangzhou FC. However, government regulations aimed at controlling real estate developer debts severely impacted financial stability, leading Evergrande to offer steep discounts on properties just to generate cash flow. This resulted in its shares losing more than 99% of their value, culminating in a bankruptcy filing in August 2023 in New York to protect its US assets amid ongoing negotiations with creditors.

The repercussions of Evergrande’s downfall extend beyond its corporate failures; the Chinese economy, heavily reliant on the real estate sector for growth (accounting for nearly one-third of the GDP), is feeling the strain. The ripple effects have resulted in a decline in investments, affecting the financial services industry and employment in vital sectors like construction. Ordinary families are particularly hard-hit, having invested their life savings in properties that may never materialize. This economic turmoil has pressured consumer spending, a situation the Chinese government intends to remedy.

In response, Beijing has initiated various measures to stabilize the industry, injecting hundreds of billions into low-interest loans for state-controlled banks and supporting struggling real estate projects. However, direct bailouts for developers were omitted to deter risky practices. Amid these challenges, President Xi Jinping is redirecting focus from property-driven growth to emerging technologies in high-tech manufacturing, renewable energy, and AI, indicating a significant shift in China’s economic priorities.