Evergrande, the troubled Chinese developer, has filed for bankruptcy protection in the US as part of a massive debt restructuring effort. The move comes amidst growing concerns over China’s property crisis and its potential impact on the country’s economy. Evergrande’s bankruptcy filing falls under Chapter 15 of the US bankruptcy code, which provides protection for non-US companies undergoing restructurings. While the filing is seen as a procedural step, it indicates that the company is nearing the end of its restructuring process after more than 18 months of negotiations with creditors.
The filing comes as China has been taking measures to address the worsening property crisis. Earlier this week, the country unexpectedly lowered several key interest rates to stimulate economic activity, and it is expected to cut prime loan rates on Monday. However, analysts argue that these moves may be too late and that more forceful measures are needed to prevent further damage to the economy.
Evergrande’s restructuring involves $31.7 billion of offshore debt, including bonds, collateral, and repurchase obligations. The company is scheduled to meet with creditors later this month to discuss its restructuring proposal. The company’s troubles have sent shockwaves through China’s property sector, with several other developers defaulting on their offshore debt obligations. The crisis has also raised concerns about potential contagion risks to the country’s financial system.
The property crisis has had a significant impact on China’s economy, which was already weakened by sluggish domestic and foreign demand, declining factory activity, and rising unemployment. To address these broader economic concerns, China’s central bank has pledged to adjust and optimize property policies. However, economists warn that more substantial support measures may be necessary to achieve the country’s growth targets. Some major global brokerages, including Nomura, have already cut China’s growth forecast for this year.
The uncertainties surrounding China’s economic situation and the lack of concrete stimulus measures have had a chilling effect on global markets. Asian shares have experienced a third consecutive week of declines, with Chinese blue-chip stocks dropping 1.2% on Friday and Hong Kong’s Hang Seng Index slumping 2.1%. In an attempt to restore investor confidence, China’s securities regulator recently announced measures aimed at reviving the stock market, including cutting trading costs and supporting share buybacks. However, the impact of these measures on market sentiment remains to be seen.
While a full-blown financial crisis is considered a tail risk rather than a probable outcome, experts caution that the economic downturn and the strain on the financial sector’s balance sheets could increase the risk of a messy policy mistake. The situation underscores the need for careful handling by Chinese officials to avoid further exacerbating the debt problem. Long-term solutions for the property sector and significant policy interventions will be necessary to stabilize the market and restore investor confidence.