Will Evergrande’s Liquidation Order be Enforced in China?
“I think it’s extremely unlikely,” David Goodman, director of the China Studies Centre at the University of Sydney in Australia, told VOA in a phone interview on Tuesday.
“It's not only a question of enforcement, it's a question of what the central government [in Beijing] wants to do. If it starts to get involved in this, it has to get involved in other activities, too, by extension. So, this is a big issue,” Goodman said.
Goodman added that it’s possible Beijing might use the opportunity to restructure the faltering property sector more deeply, although, he said, it could have already done so if it wanted to.
Evergrande, once China’s largest property developer, is headquartered in Hong Kong, but 90% of its assets — including more than 1,300 housing projects across 280 cities — are in mainland China, where the Hong Kong court has no jurisdiction.
If the Chinese courts were to recognize Hong Kong’s ruling, it could also set an example to other financially troubled developers in China, said Goodman, who believes that Evergrande’s debt to various creditors is larger than its claimed liabilities of $300 billion.
Domino effect
Chiou Jiunn-rong, a professor of economics at National Central University in Taiwan, agreed the liquidation of Evergrande in China could trigger a domino effect that would pull down the property market, impacting the entire industry from creditors to contractors and interior decorators.
“China’s economy will experience a huge drag down as builders, banks and home buyers are all hit badly by the crisis. The economy will surely further weaken if more developers face a similar fate of forced liquidation,” Chiou told VOA Mandarin in a phone interview on Monday.
He said if more property developers face forced liquidations, Chinese home buyers would also hold off on potential purchases in anticipation of lower property prices.
And that is just the impact on China. Evergrande says it has more than $300 billion in debt and filed for bankruptcy in New York last year. If the property market in China falters, it would add to the growing number of economic challenges the country is already facing.
Uncertain delivery of unfinished homes
An even greater uncertainty for Beijing is its goal to ensure the delivery of an estimated 20 million unfinished homes nationwide, including those pre-sold by Evergrande to more than 5 million Chinese buyers.
Following Monday’s liquidation order, Evergrande CEO Shawn Siu pledged that the company’s “unfinished construction projects would be completed,” according to Chinese finance media 21st Century Business Herald.
Chinese Vice-Premier He Lifeng, on Monday, also addressed the nation’s faltering local property sector saying, “efforts should be made to establish a financing coordination mechanism for urban housing projects, and promote the implementation of specific financing projects,” state media China Daily reported.
Citing an anonymous source, financial news website China Business Network reported on Tuesday that China’s banking regulators may finalize a whitelist of 50 developers for finance this week. The idea was first drafted late last year but has yet to be announced.
While the move aims to give China’s financial institutions more confidence in lending to the struggling sector, analysts said banks may resist, adopting a wait-and-see approach for fear of getting stuck with bad loans.
Lu Ting, chief China economist of Nomura Securities, had previously argued, Beijing may ultimately “have to play the role of lender of last resort,” filling a funding gap of 3.2 trillion yuan ($448 billion) to complete the construction of those 20 million unfinished homes.
China’s stimulus measures
China has been mulling over measures to bolster the real estate market. Last Saturday, the southern city of Guangzhou announced it was relaxing restrictions to allow home buyers to purchase as many as they want, as long as the properties they are buying are bigger than 120 square meters.
According to Chinese media reports, other megacities including Beijing, Shenzhen and Shanghai are likely to follow suit to help accelerate the sale of homes and reduce housing inventory.
Dozens of provinces in China have already offered preferential mortgage rates for first time home buyers as another measure to boost sales.
Most of these policies, however, have done little to prop up the property market as the Chinese economy is deteriorating, said Shi Ling, a Brisbane, Australia-based commentator.
“There’s just not a strong market signal, neither do China’s economic fundamentals provide enough support to fuel its recovery or help Evergrande turn around its business,” Shi Ling told VOA Mandarin on Monday in a phone interview.
This article originated in VOA’s Mandarin Service.