The rise and the fall of Evergrande leave scars in the Chinese goods sector

On Monday, the China Evergrande group was struck off from the Hong Kong Stock Exchange – an ignominious outing for the former high -flying developer who once embodies the economic rise of Beijing and later came to symbolize the bust of the country’s property.

After registering in 2009, Evergrande had become one of the hottest shares in China, the market capitalization of the company culminating at $ 51 billion in 2017. The company’s shares trade had been suspended since January 2024 when it received a liquidation order, its market value falling to just over $ 280 million, according to LSEG data.

Evergrande, once the largest Chinese developer by sale, will remain in memories as the most indebted developer in the world with more than $ 300 billion in debt and whose defect has triggered a broader crisis of several years which led to the economic growth of the country.

It was one of the first developers who failed after Beijing deployed its three -line policy in 2021. Politics, which aimed to reintegrate aggressive loans, triggering a liquidity crisis at the sector level.

The slowdown in housing in China has extended to a fourth year, with prices, sales, investments and construction activities that are hungry in all areas, weighing on economic growth.

The new prices of houses in China fell to the fastest rate in eight months in June, decreasing by 3.2% by one year before recovering slightly to a drop of 2.8% in July, while the drop in investments related to real estate has deepened.

The course of Evergrande in the aftermath of its collapse took place during a collapse of the prolonged property which led to the wider economy, although the analysts expect the trail to support in the years to come.

“The bubble of properties of China culminated in 2021 and has been deflated since,” said Andy Xie, independent economist based in Shanghai. He pointed out that the sales volumes of new residential properties had halved in the four years. Prices have halved in small cities and large suburbs of cities and fell up to 30% in the central areas of level 1 cities, said the economist.

“The adjustment is not finished. But the economy has already absorbed most of the impact,” added Xie.

“Correcting the housing market in China remains an ongoing front wind, although we plan less for the next few years,” said Changchun Hua, chief economist from Greater China to Kkr, capping a 1.5 percentage trail on the gross domestic product of China in 2025, against a 2.5 percentage bar in 2022.

The drag will continue to shrink at only 0.3 percentage points in 2027, according to Hua estimates.

At a high -level political meeting last week, Chinese Prime Minister Li Qiang stressed the need for more effective measures to meet the real estate market and stabilize market expectations. The Chinese property and construction sector represented more than a quarter of China’s GDP before Beijing’s repression against the excessive debt of developers in 2020.

On Monday, the Shanghai government announced a series of measures to stimulate the demand of houses, in particular by allowing eligible families to buy an unlimited number of houses in the external suburbs and to request lower mortgage rates. This followed similar relaxation measures of the municipal government of Beijing at the beginning of the month which abolished the restrictions of purchase of houses on the outskirts.

Chinese developers’ actions joined the optimism on Monday morning that Beijing will continue with more stimulus to support the housing market, according to William Wu, real estate analyst in China at Daiwa Capital Markets.

As most private developers have already been lacking and undergo a restructuring of debts, “we have exceeded the point -of -cutting wave,” said Leonard Law, main credit analyst at Lucror Analytics.

That said, some of Evergrande’s peers can face similar risks, said Christine Li, research manager for Asia-Pacific at Global Property Consultancy Knight Frank. Twenty of these developers have been approved for debt restructuring plans since the start of this year, eliminating more than 1.2 Billion of Yuans (167 billion dollars) of liabilities, according to Li estimates.

Beijing has urged local governments to guarantee faster loans to short of money promoters and would consider a plan to mobilize public enterprises to take up the invendated houses of distress developers as part of an effort to stabilize the sector.

Although the risk of more defects of developers has calmed down, consolidation around developers supported by the State seems inevitable because the multi -year crisis has left the buyers more cautious than before.

“There is now a clear flight to security, buyers favoring state developers and the properties completed compared to presale,” said Cathy Lu, credit analyst in Octus, formerly known as Reorg, a financial data company specializing in the restructuring of debt.

Many of these major developers who are about to be “zombie companies” will ultimately be integrated into the state machinery, said Brian McCarthy, Managing Director at Macrolens. He predicts that state entities will finance the completion of unfinished units.

“State-owned developers will end up directing the whole industry. Political decision-makers in China will never let this bubble approach something like (that) we have seen in the past 15 years,” he said.

In January of last year, a Hong Kong court ordered the liquidation of the local assets of Evergrande after its creditors had a petition, appointing Alvarez & Marsal – the company which helped to relax Lehman Brothers – to undertake the process.

So far, progress has been slow. Creditors abroad only fell into a fraction of what they are due, most of the Evergrande assets sitting on the continent.

Evergrande still has at least hundreds of unfinished projects across the country, with hundreds of thousands of reception buyers awaiting their house, and a long line of creditors, companies in China who provided Evergrande documents to bonds who are jostling to recover their losses.

“For Evergrande, home delivery remains the priority,” said Lu d’Octus. Evergrande said that it had delivered 1.2 million houses in the past four years, with more than 95% of the units sold completed, according to the state media, citing a company representative.

Creditors, however, continue to deal with uncertain reimbursement prospects. Although its offshore entity has been in the liquidation process since last year, the Massive Evergrande ones are also insolvent, offering little restructuring value, added.

The liquidators of Hong Kong declared in a file earlier this month that the loading of the debt of Evergrande was much more important than expected and that any “holistic” restructuring would be out of reach. The Evergrande debt battery amounts to $ 45 billion, much higher than the $ 27.5 billion in Evergrande’s financial disclosure in 2022, liquidators said.

Despite liquidation efforts, bonds abroad and shareholders should be largely wiped out, said McCarthy de Macrolens. “For foreign investors who invest in China via Hong Kong, you have an appeal limited to assets on the ground if things go wrong.”