China's real estate giant Evergrande will be dismantled after a Hong Kong court ordered the company to liquidate on Monday, citing its inability to bring any concrete restructuring proposal to the court after running out of cash and defaulting in 2021.
The judge's order is something of a nail in the coffin for Evergrande, once China's biggest real estate firm, which has been in a two-year limbo and is now over $300 billion in debt. It also represents another blow to Chinese and foreign investors who have lost confidence in the country's economy in the past few years, as China's growth pace has slowed down in a way that most economists find to be irreversible.
"It is time for the court to say enough is enough," Hong Kong Justice Linda Chan said in court on Monday.
Chan appointed Alvarez & Marsal as the liquidator, which could potentially take charge of a new restructuring plan for Evergrande while its chairman, Hui Ka Yan, is under investigation. The company provided no details about what crimes Hui is being investigated for but said he's been placed under police surveillance.
Evergrande chief executive Siu Shawn told Chinese media that Evergrande will make sure home-building projects will still be delivered despite the Hong Kong judge's order, as reported by Reuters.
He said that the liquidation order would not affect Evergrande's operations of onshore and offshore units.
Tiffany Wong, managing director of Alvarez & Marsal after Chan's appointment, said that the company's priority "is to see as much of the business as possible retained, restructured, and remain operational." She added: "We will pursue a structured approach to preserve and return value to the creditors and other stakeholders."
Newsweek reached out to Evergrande and Alvarez & Marsal's Wong by email on Monday morning for comment.
It's not yet clear whether the Chinese courts will recognize the Hong Kong judge's ruling, considering the political and financial consequences this should have on the country.
Beijing has been trying to put the economy on solid footing after a crisis within its property sector, which was the main driver of its spectacular growth in the past few decades and which currently represents more than a quarter of all economic activity in the country.
Evergrande's potential liquidation would create more uncertainty in the fragile Chinese economy, which has been weakened by its ongoing property crisis, soaring local government debt, a weaker yuan, an aging workforce and slower internal demand.
In a recent interview with Newsweek, Craig Singleton, senior China fellow at the non-partisan Foundation for Defense of Democracies, said that Beijing is "in damage control mode, attempting to project a sense of stability to the international community while grappling with myriad domestic challenges," he said. "If ever the cliché 'investor beware' applied, it's now," he told Newsweek.
Update 1/29/24, 9:56 a.m. ET: This story was updated with additional information.
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Giulia Carbonaro is a Newsweek Reporter based in London, U.K. Her focus is on U.S. and European politics, global affairs ... Read more
