Evergrande Liquidation Hearing Begins Today, The Result May Severely Damage China’s Economy

The liquidation hearing of China Evergrande Group will be held on the 29th. The ruling of the Hong Kong High Court will determine whether Evergrande enters bankruptcy liquidation procedures.

Analysis points out that if Evergrande goes bankrupt and liquidates, it will have an impact on China’s real estate industry and will also be a serious setback for China’s economic recovery.

According to media reports, the Hong Kong High Court will hold a liquidation hearing against China Evergrande Group on January 29. In addition to the original applicants, a group of creditors holding more than US$2 billion (approximately RM9.5 billion) in offshore bonds Joining increases the chances of a court ruling issuing a liquidation order.

If Evergrande enters bankruptcy liquidation proceedings, analysts point out that it will cause a major setback to China’s economic recovery and further shake China’s financial system.

The report mentioned that over the past 20 years, the real estate industry has been the main engine driving China’s economic development. However, as the real estate crisis worsened, many real estate developers have been reported to have gone bankrupt, while the expenditures of construction companies have dropped by 10% annually for two consecutive years. . In December last year, the sales of new homes by China’s top 100 real estate companies fell by 34.6% year-on-year, with a total scale of approximately 451.3 billion yuan (approximately RM300.6 billion).

On the other hand, “land sales” are an important source of income for Chinese local governments. However, as the real estate industry is overwhelmed, this income has also shrunk significantly.

It will take 6 years to solve the problem of unfinished buildings

Reports pointed out that most economists predict that China’s economic growth will slow down in 2024, and the worsening real estate crisis may further weaken demand and shake China’s financial system. Oxford Economics analyzes that it will take 4 to 6 years to completely resolve the problem of unfinished buildings in China.

However, whether Beijing will agree to the implementation of bankruptcy liquidation resolutions made by Hong Kong courts in other cities in China has also attracted market attention.

The report mentioned that in the past, Beijing had agreed to recognize liquidation orders issued by Hong Kong courts in Shenzhen, Shanghai, Xiamen and other places, but liquidation orders have been difficult to implement due to the opacity of China’s legal system.

If the liquidation order of the Hong Kong High Court is recognized by the Chinese court, Evergrande will be handed over to the management of the liquidator, who must try to sell Evergrande’s assets to repay creditors. If the liquidator determines that the company has sufficient assets, it can propose a new debt restructuring plan to overseas creditors.

In addition, the liquidator will also conduct an internal affairs investigation of the company and may refer any suspected misconduct to Hong Kong prosecutors.

According to an earlier report by Bloomberg, Evergrande is the world’s most indebted real estate developer. Of the winding-up hearings currently scheduled for defaulting Chinese developers, only Evergrande faces a regulatory order hearing.

Evergrande’s liquidation dispute began on June 24, 2022, when Evergrande’s creditor Top Shine Global Limited of Intershore Consult (Samoa) Limited filed a liquidation application with the Hong Kong High Court. Subsequently, on September 5 and September 8 of the same year , November 28, and March 20, July 31, October 30, and December 4, 2023, 7 postponements were announced.

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