Evergrande Crisis and Economic Fallout | Generated by AI
Overview of the Evergrande Crisis
China Evergrande Group, once the world’s largest property developer by sales, epitomized the aggressive growth of China’s real estate boom. Founded in 1996, it expanded rapidly through high debt and presales of unfinished homes, peaking at a $51.7 billion market cap in 2017. However, Beijing’s 2020 “three red lines” policy to curb excessive borrowing triggered its downfall. Evergrande defaulted on $300 billion in total debt (including $45 billion offshore) in late 2021, sparking a liquidity crisis that rippled across the sector.
Current Status as of October 2025
- Liquidation and Delisting: A Hong Kong court ordered Evergrande’s liquidation in January 2024, appointing Alvarez & Marsal as liquidators. Trading was suspended in March 2024, and shares were officially delisted from the Hong Kong Stock Exchange on August 25, 2025—one of the largest delistings in history. The process has been slow, with only $255 million in assets sold by mid-2025, mostly onshore units deemed insolvent.
- Ongoing Challenges: Hundreds of unfinished projects remain, leaving hundreds of thousands of homebuyers in limbo. The company claims to have delivered 95% of sold units (1.2 million homes) over the last four years, but priority is on completing homes amid creditor disputes. Offshore bondholders and shareholders face near-total wipeouts, with recovery limited to a fraction of claims.
The Fallout: Impacts on China
Evergrande’s collapse was the canary in the coal mine for China’s property sector, which historically drove 25-30% of GDP through construction, land sales, and related industries. The crisis has dragged into its fourth year, creating a vicious cycle of falling prices, stalled projects, and debt defaults.
Property Sector
- Price and Sales Slump: New home prices fell 3.2% year-on-year in June 2025 (easing to 2.8% in July), with drops up to 30% in major city centers, 50% in suburbs, and halved sales volumes over four years. Construction starts are down 20% in the first seven months of 2025.
- Developer Domino Effect: Evergrande’s default triggered $130 billion in sector-wide defaults. Eight of China’s 30 largest builders (including Evergrande) have received liquidation orders by October 2025, while others like Sunac and Country Garden undergo restructurings, clearing over $167 billion in liabilities since early 2025. Private developers are consolidating under state-backed firms, with buyers shifting to “safer” completed properties.
- Government Response: Beijing has rolled out stimulus, including lower mortgage rates, relaxed purchase limits in cities like Shanghai and Beijing, and urging local governments to lend to developers. State-owned firms may buy unsold inventory, but experts warn the adjustment isn’t over.
Broader Economy
- GDP Drag: The sector’s woes shaved 2.5 percentage points off GDP growth in 2022; it’s now at 1.5 points in 2025, expected to ease to 0.3 by 2027. Real estate investments continue declining, hitting local government revenues from land sales.
- Social and Employment Toll: Millions face unfinished homes, eroding consumer confidence and spending. Construction unemployment has risen, contributing to stagnant consumption and youth joblessness. The crisis exacerbates China’s structural challenges, like an aging population and over-reliance on investment-led growth.
- Financial Strain: Banks hold trillions in exposure, though bad loans are contained via restructurings. Local governments, already debt-burdened, see reduced fiscal space.
Global Implications
While initial 2021 fears of contagion rocked global markets (e.g., brief sell-offs in commodities and emerging bonds), the fallout has been largely contained to China by 2025. Indirect effects include:
- Trade and Supply Chains: Slower Chinese growth reduces demand for imports (e.g., Australian iron ore, U.S. soybeans), but no major disruptions.
- Investor Sentiment: Offshore creditors (many Western funds) have taken hits, but the $45 billion offshore debt is a drop in the global bucket. Emerging market volatility persists, though China’s stimulus has stabilized yuan flows.
- Lessons Learned: Highlights risks in leveraged economies, influencing tighter global real estate regulations.
Overall, Evergrande’s saga underscores the perils of debt-fueled booms, with China’s property correction likely to linger, weighing on recovery efforts amid U.S. trade tensions and domestic deflation.
References
- Evergrande’s $50 billion rise and fall leaves scars on China’s property sector
- China’s Biggest Builders Hobble Toward End of Restructurings
- 5 Years On, China’s Property Crisis Has No End in Sight
- From default to delisting of Evergrande, world’s most indebted developer
- China Evergrande liquidators say $255 million of assets have been sold