What is Evergrande?

Why in the News 

Evergrande, the Chinese real estate giant, was removed from the Hong Kong Stock Exchange on August 25, 2024, following its dramatic collapse.

• Formerly ranked as the world’s top real estate company in 2018, Evergrande’s collapse exposes the risks of China’s debt-driven property growth model.

What is the story of Evergrande’s dizzying rise?

• Founded by Xu Jiayin (Hui Ka Yan), Evergrande became a symbol of China’s urbanisation boom.
• It adopted a high-leverage, high-turnover model, buying land with borrowed money, selling apartments before completion, and rapidly expanding into finance, healthcare, sports, and theme parks.
• In 2017, Evergrande’s debt reached $51 billion, positioning it as the largest real estate developer in China.

What was meant by Evergrande’s ‘collapse’?

• The fall was long in the making, triggered by over-expansion, declining demand, and tightening regulations.
• The Chinese government’s “three red lines” policy (2020) forced developers to cut debt and limit borrowing.
• Evergrande failed to repay its offshore debt in 2021, leading to a court-mandated liquidation in 2024.
• By mid-2024, Evergrande had only $25.5 billion in assets against $300 billion liabilities.

How will the company’s future be affected by the stock’s removal from the exchange?

• The delisting signals no imminent recovery—the company is under liquidation.
• Many of its projects remain unfinished, with millions of Chinese families affected.
• Confidence among investors in China’s real estate market has significantly dropped.

How has the Chinese economy been affected overall?

• Housing demand slowdown:: Demographic shifts (ageing population, shrinking households) worsened property oversupply.
• Confidence crisis:: Local governments reliant on land sales and property taxes face shrinking revenues.
• Banking sector impact:: Chinese banks exposed to Evergrande’s loans, though Beijing has contained systemic risks so far.
• Broader slowdown:: Other major firms like Country Garden also face distress, contributing to a drag on China’s overall growth.

Is the Evergrande crisis comparable to the collapse of the investment bank that triggered the 2008 global financial crisis?

• Similarity:: Both expose risks of over-leveraged, debt-driven business models.
• Difference::
  • Lehman’s collapse sparked a global financial meltdown.
  • The unwind of Evergrande has been gradual and directed by the state, avoiding a ripple effect on global markets.

Analysts call it China’s “Lehman-lite moment”, highlighting the need for China to shift from a debt-heavy property-led model to a more sustainable growth path.