Debt-ridden Chinese real estate giant Evergrande is being liquidated

The project developer with the largest debts in the world is being liquidated.

Struggling Chinese giant Evergrande has been ordered into liquidation by a Hong Kong court, a move that could send shockwaves through the country’s housing market and broader economy.

The ruling, handed down yesterday by Judge Linda Chan of the Hong Kong High Court, comes just over two years after Evergrande officially defaulted on a massive £260 billion debt pile, triggering a cash crunch in China’s real estate sector .

The debacle left massive housing projects unfinished across the country and led to moves by the Beijing government to prevent a domino effect in the sector.

Since then, several rivals have followed the company into bankruptcy.

Hong Kong courts have issued winding-up orders for at least three smaller companies since 2021.

But things got worse yesterday when Chan called time for Evergrande’s efforts to keep itself afloat after lengthy talks with creditors to draw up a restructuring plan failed.

“Enough is enough,” the judge said. “I am of the view that it is appropriate for the court to issue a winding-up order against the company and I recommend that it do so.”

The decision caused Evergrande’s shares to plunge nearly 21 percent before trading was halted on the Hong Kong Stock Exchange.

The company’s shares have lost more than 99 percent of their value in the past five years and have a market value of just £213 million, down from a peak of £42 billion in 2017, and completely overshadowed by its massive debt mountain.

Chinese authorities have also become involved, with Evergrande’s billionaire chairman Hui Ka Yan being taken by police in September and placed under observation on suspicion of ‘illegal crimes’.

The Hong Kong courts’ ruling will be tested on whether it will be implemented in mainland China, where most of Evergrande’s projects and assets are located.

It is not yet known whether the mainland courts will accept the decision. Chinese media reported that Evergrande boss Shawn Siu said the company’s structure was “not affected” by the order and that it would do “everything possible” to continue delivering its construction projects in the country.

But its woes could have far-reaching consequences for both the Chinese and global economies as the construction sector consumes vast amounts of raw materials such as steel and cement.

Russ Mould, investment director at estate agent AJ Bell, said: ‘The big question now is what impact this could have on the financial system if investors big and small only get a fraction of their money back, and would-be homeowners don’t get the house they want. ‘I bought because buildings are not yet finished.’

He added that the liquidation would also likely make China an “even bigger risk” for foreign investors because Evergrande’s fate had created “so many uncertainties” about possible ripple effects.

Banking giant HSBC is among those to have suffered from exposure to the troubled sector, reporting in October that it had taken a £410 million hit from the recession.

The troubles in China’s real estate market come as the country tries to grapple with a broader economic slowdown that threatens to derail its ambitions to overtake the US as the world’s largest economy.

A shaky recovery from the pandemic, high youth unemployment, a declining population and declining demand for goods due to cost-of-living pressures have all increased pressure on the ruling communist government and its leader Xi Jinping .

They have previously pledged to make the country great again by 2049 under a “rejuvenation plan” that includes boosting economic prosperity.