A giant's crashing collapse
The lifeline never came and finally the world's largest real estate company, China's Evergrande, saw its liquidation ordered by a Hong Kong court. The giant has collapsed with a crash after its difficulties in repaying the colossal debt it had accumulated were discovered in 2020, and in 2021 the United States declared it bankrupt, a decision that Xi Jinping's government then viewed with a mixture of astonishment and resignation. The company had become an emblem of the spectacular development driven by the regime, insofar as it had been the main driving force behind the country's urban transformation. Beijing, however, would not exert much pressure to protect it, an attitude that would respond to the leadership's desire that the possible fall of Evergrande would be an example and a warning to developers prone to unlimited indebtedness.
The Hong Kong court's decision came after finding "a clear lack of progress by the company in presenting a viable restructuring plan". This decision was deemed "extremely regrettable" by the company's CEO, Shawn Siu, in a statement to the 21st Century Business Herald, although without providing any reliable information on the alleged progress in granting new loans to repay the defunct credits. In this regard, lawyer Fergus Saurin, representing the group of creditors that had called for Evergrande's liquidation, denied that the company was in negotiations with them for a debt restructuring. According to AFP, Saurin said that Evergrande had "only engaged in a last-minute attempt at dialogue, but it did not bear fruit", before adding that "the company has no one to blame but itself for being put into liquidation".
The amount of debt amounts to an astronomical 2.388 trillion yuan, equivalent to 308 billion euros, a liability that the liquidators will only be able to alleviate by a tiny 4% at best. It is therefore a considerable hole for the banks that have granted these loans, the vast majority of which are Chinese, since of such a formidable debt, only 22 billion euros would have been granted by foreign institutions.
Judge Linda Chan has appointed the law firm Alvarez & Marsal as liquidator. It is the same firm that was in charge of the liquidation of Lehman Brothers, the gigantic pyramid scheme that triggered the great global financial crisis of 2008, from which many countries and regions of the world, including the European Union, have still not fully recovered.
This marks the end of a period of excessive growth in China's construction sector, where tens of millions of new flats were contracted off-plan, which made it easier for developers to obtain credit lines without too much difficulty. Moreover, Evergrande's example was followed by other construction companies, which ended up turning on all guns in the face of the overall volume of real estate debt. The rush seriously affected other countries which, in the face of strong Chinese demand, saw the price of all materials multiply, from cement to iron, as well as the emptying of billions of cubic metres of sand from the coastlines of developing countries, causing strong distortions in the markets and in nature.
President Xi Jinping ordered a halt to the frenzied pace of construction, considering its brutal indebtedness as the main risk factor for the country's economy and financial system. Despite this, the risk has not disappeared and continues to loom. The reason for this is the fall in the selling prices of built flats, which makes it more difficult for developers to honour the loans they have taken on in a timely manner. According to official data, Chinese banks granted the equivalent of 1.29 trillion euros in real estate loans in 2023. Evergrande is no longer among the beneficiaries, but it has raised the alarm that other firms may have holes in their accounts that are also worryingly large.