Battling $300 Billion Debt, Chinese Property Giant Evergrande Files for Bankruptcy in the US

  • Updated

Indebted Chinese property giant Evergrande has filed for bankruptcy protection in the US, underscoring fears that the slump in the Chinese property market is serious enough to cripple the economic growth of the world's second largest economy considerably.

Evergrande, which has been struggling with mounting losses and debt, has more than $300 billion in liabilities. On Thursday, the company made the Chapter 15 bankruptcy protection filing in a New York court, enabling it to protect its US assets even as it works out a restructuring of its debts.

World's Most Indebted Property Developer

Evergrande, which is the world's most indebted property developer, has more than 1,300 projects across 280 Chinese cities.

 Evergrande Group

Through the New York bankruptcy filing, Evergrande aims to avail of more time to restructure $32 billion in overseas debts. Evergrande did not issue a statement regarding the bankruptcy filing, news agencies reported.

When Evergrande defaulted on payments in 2021, the Chinese property sector went into a tailspin, leaving a major dent on the Chinese economy. The property sector has been the strongest growth engine of China for many years, accounting for as much as 30 percent of the country's GDP.

Overheating Property Market

The Chinese property market has been overheating for many years and there has been intense pressure on the government to bring the property prices down. The prevalence of a huge shadow banking network made excessive borrowing by developers possible, resulting in an exorbitantly priced housing market. Beijing's crackdown on excessive borrowing cut the financial lifeline of Evergrande, resulting in its default.

China property market
China property prices are expected to fall in 2017 Reuters

The collapse of Evergrande left a cascading effect, leading to the failure of other major real estate players such as Kasia, Fantasia, and Shimao Group.

This week, a leading Chinese trust firm that has significant real estate exposure missed payments on several investment products, confirming fears that the struggling property sector in the country is stifling the economy further. Clients of Zhongrong International Trust said this week that the financial behemoth has failed to repay maturing trust products. This happened after online rumors linked the company to the collapse of investment giant Zhongzhi Enterprise Group.

Country Garden Crisis

Also this week, shares in Country Garden plunged on reports that the real estate developer had suffered multi-billion losses and halted trading on its corporate bonds. Country Garden, which was China's largest property developer by sales, saw its shares suffering a 63 percent fall this year.

Chinese Yuan
Representational Image Twitter

The worsening property sector crisis in China will undermine China's economic growth further. Data showed last week that China's inflation gauge dropped 0.3 percent in July, after having flatlined in June, indicating that the world's second largest economy has fallen into deflation.

China's economy grew at a frail pace in the second quarter as demand weakens at home and abroad, data showed in July. Gross domestic product grew just 0.8% in April-June from the previous quarter, compared with a 2.2% expansion in the first quarter, data released by the National Bureau of Statistics showed last month.