By John Q. Hosedrinker 
Evergrande, once the world’s most indebted property developer, amassed $300 billion in debt, leading to its downfall after Beijing implemented new borrowing restrictions in 2020. The company’s financial struggles worsened, resulting in defaults on overseas debts and a subsequent liquidation order from the Hong Kong High Court in January 2024, following years of legal battles. The company’s shares were delisted after a 99% loss in market value. Liquidators have revealed $45 billion in debts and limited asset sales. The focus has now shifted to the distribution of assets among creditors during the ongoing bankruptcy process.
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Chinese property giant Evergrande’s shares were taken off the Hong Kong stock market on Monday after more than a decade and a half of trading. It marks a grim milestone for what was once China’s biggest real estate firm, a company that was once valued at over $50 billion. The delisting, experts say, was both inevitable and the final chapter for a company whose rise was as spectacular as its fall.
Just a few years ago, Evergrande Group was a shining example of China’s economic prowess. Its founder, Hui Ka Yan, rose from humble beginnings to become one of Asia’s wealthiest individuals, topping the Forbes list in 2017. But his fortune, like his company’s fortunes, has since crumbled. From an estimated $45 billion in 2017, his net worth is now less than a billion. His fall from grace is as extraordinary as the company’s financial collapse. In March 2024, Mr. Hui was fined and banned from China’s capital market for life for his company overstating its revenue.
It’s a stark reminder of the age-old saying: the bigger they are, the harder they fall. Evergrande rode the wave of China’s economic boom. As long as property prices kept climbing, all seemed well. The rapid inflation of property values in Chinese cities like Shanghai, where prices surpassed those in San Francisco, became completely unsustainable. The gap between Chinese incomes and the cost of housing grew wider and wider. Meanwhile, Evergrande racked up over $300 billion in liabilities.
But the delisting was accomplished without catastrophic damage to the Chinese economy. The fall of Evergrande, while significant, didn’t trigger the feared collapse that some had predicted. Perhaps surprisingly, this company that was founded just fifteen years prior, seems like a paper giant. This whole situation is fueled by hype and outright lies to get more money.
It’s tempting to see this as a simple matter of economic failure, but the reality is far more complex. The initial impact, however, seems contained. China, in this instance, has proven that “too big to fail” is, in fact, a myth. While there may not be large ripples across western economies, Chinese unemployment could likely surge as a result.
Chinese citizens sought property as an investment, with limited alternatives like stock or bond markets. Owning a home became a huge status symbol, driving demand for new properties, often in the form of so-called “ghost cities.” This, in turn, created a cycle of overbuilding and unsustainable debt. The Chinese government, in a bid to avoid a full-blown crisis, took action, including strict capital controls and measures aimed at completing unfinished housing projects.
One key factor in Evergrande’s collapse was its extreme leverage. The company borrowed extensively, often with debt exceeding its net equity by several times. This over-leveraging was a recipe for disaster, especially when the government stepped in to cool down the overheated property market. The Chinese government’s actions prevented the economic catastrophe that occurred in the West in 2008, thanks to the so-called “Three Red Lines” policy.
This all led to a remarkable situation. The Chinese government, in trying to address the real estate situation, has avoided the worst, while managing to maintain a positive economic outlook. However, it comes at a cost. Millions of Chinese citizens have been left with uncompleted homes, which means that they own a loan on a property that is still in the process of being built.
The government’s response involves some programs to buy or complete these homes, but the funding is insufficient compared to the current defaults and the financial problems of other companies. The strict capital controls, which made property a safe investment vehicle, combined with low interest rates, lack of safety nets, and limited investment options, created the perfect storm. The fallout could lead to higher unemployment in China, and is also likely to drive down prices.
The executives who mismanaged the funds are now being held accountable. The Chinese people view this wealth as belonging to them, and they are furious that executives absconded with the money. In order to buy properties, Chinese citizens often pool money from relatives, a factor that makes borrowing easier. The Chinese approach to controlling the situation in the wake of Evergrande’s downfall is rather unique. Americans, as a result of the economic crisis in 2007-2008, essentially gave taxpayer money to those who destroyed the economy. The Chinese, on the other hand, will imprison those who cause an economic collapse.
The Chinese government, using its influence, has been working to help its citizens who invested in Evergrande. The primary focus is on the completion of housing projects. It is believed the Chinese government is working to ensure that this happens. The focus of the government is to maintain stability. The relief programs, however, are underfunded.
While the situation is concerning, China’s government is trying to prevent the kind of collapse that has happened in other countries. The steps they have taken are not perfect, but they are striving to ensure that the worst-case scenarios are avoided.