The Squiz  

China’s largest and most debt-ridden property developer, Evergrande, has been told to liquidate after years of financial struggle. The company has liabilities of around $493 billion and defaulted on its debt 2 years ago – and after it was given some breathing space, it has since failed to offer up a suitable restructuring plan. Yesterday, that prompted a Hong Kong court to tell Evergrande’s directors that “enough is enough”, ordering them to begin selling off parts of the company to recoup some losses for its investors.

Back it up a bit… 

Here’s a good explainer, but to summarise… Chinese property developers accumulated high levels of debt pre-2020 as they raced to build accommodation for people and businesses across the country. Then the pandemic hit, and despite the government stepping in to stem the bleeding, there were huge losses. That brings us to Evergrande… It was one of the biggest developers, and after it proposed a restructure of its debt last month, the company’s creditors (aka those who lent it capital) said they weren’t happy with their plans. This brings us to yesterday when the court ruled in favour of creditor Top Shine Global, which wants Evergrande to be wrapped up. Evergrande could choose to appeal the decision, but whatever happens, the decision will reverberate across China’s financial markets and shake international investor confidence. 

Umm, why do I need to know about this? 

Well, you might not need to know – we’re not the boss of you… But Evergrande’s fortunes are central to the story of why China’s economy has been struggling – and that’s important to Australian exporters and our economy… China’s property sector is worth about 30% of the country’s economy, and last year, the Reserve Bank warned Aussies that the “sharp deterioration” in the sector could lead to “reduced Chinese imports of Australian goods and services”. Andrew Collier leads a market analytics firm in Hong Kong – he said the decision to liquidate Evergrande was “a sign that China is willing to go to extreme ends” to stamp out its property problems. And strategist Redmond Wong agrees, saying “the restructuring and winding up of developers are necessary for cleaning up the excesses in the Chinese property sector”. One thing’s for sure – it’s a nasty/expensive band-aid for China to rip off…