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Here's what to know about the collapse of China's Evergrande property developer

At a partially operating Evergrande commercial complex in Beijing on Monday, a man walks past a map of China that shows Evergrande's commercial complexes throughout the country. Evergrande was once listed as the world's most valuable real estate company, but on Monday, a Hong Kong court ordered it to be liquidated.
Greg Baker
AFP via Getty Images
At a partially operating Evergrande commercial complex in Beijing on Monday, a man walks past a map of China that shows Evergrande's commercial complexes throughout the country. Evergrande was once listed as the world's most valuable real estate company, but on Monday, a Hong Kong court ordered it to be liquidated.

A Hong Kong court has ordered the liquidation of the Evergrande Group, China's giant and massively indebted real estate developer, after the company was unable to restructure the $300 billion it owed investors.

Just six years ago, Evergrande was riding high, preselling apartments to middle- and upper-income Chinese. In 2018, it was listed as the world's most valuable real estate company. But just three years later, it was on the financial ropes. Massively overleveraged and unable to complete some existing projects, Evergrande has become symbolic of a Chinese economy that faces some major near-term obstacles: slowing growth, increasing debt and a shrinking workforce.

Evergrande had been seeking a $23 billion debt restructuring plan, but that fell apart last year when the company's billionaire CEO, Hui Ka Yan, also known as Xu Jiayin — once one of Asia's richest people — came under investigation for unspecified criminal behavior.

China invests roughly 20% to 30% of gross domestic product annually in the economy's property and infrastructure sectors.

Although Evergrande's demise is unlikely to have an immediate impact on U.S. consumers, it is yet another indicator that China's economy — which makes up about 20% of the world's GDP — is undergoing a painful period of slowdown, and that could result in slower global growth down the road.

Here are some things to know:

Evergrande's collapse is a big deal, but it's not another Lehman Brothers

Some are already comparing Evergrande's likely demise to the 2008 collapse of Lehman Brothers, which presaged the Great Recession. The financial giant Lehman filed for bankruptcy on Sept. 15, 2008, with $613 billion in debt, triggering a banking meltdown that sent the already recessionary U.S. economy into a tailspin.

The dramatic fall of Lehman was due in large part to millions of risky mortgages propping up an unstable financial system. Homebuyers with mortgage payments they couldn't afford defaulted on their loans, sending shock waves through Wall Street and leaving those borrowers vulnerable to foreclosure.

But the experts who spoke with NPR don't think the global economy is exposed to that extent.

Evergrande has been on a slow burn to insolvency since at least 2020, when the Chinese government launched a program, known as the "three red lines," aimed at deleveraging the real estate market. Recognizing that this sector was overheated, Beijing placed restrictions on how much it could borrow.

"It worked," says Dexter Roberts, director of China affairs at the Mansfield Center at the University of Montana. "Evergrande has been the biggest victim of that policy."

But parallels with the collapse of Lehman, which was carrying $613 billion in debt (in 2008 dollars), are "a bit of an overstatement," says Roberts, who is also a senior fellow at the Atlantic Council's Global China Hub and the author of The Myth of Chinese Capitalism: The Worker, the Factory, and the Future of the World.

He calls the company's demise "a controlled implosion."

"China has known for a long time that their economy was imbalanced and too reliant on debt, with the real estate sector the most indebted industry of all and Evergrande the poster child for the most indebted company in that sector."

Scott Kennedy, senior adviser and trustee chair in Chinese business and economics at the Center for Strategic and International Studies, agrees that Evergrande's collapse should come as no surprise to its investors or to the rest of the world.

He says that Evergrande's business model, like that of other real estate developers in China, is pre-sold housing — an inherently risky strategy. It has led hundreds of thousands of Chinese to buy homes that now have no timeline — and perhaps no hope — of ever being completed.

"At some point, you may not be able to actually complete all of that housing. ... Eventually projects get bogged down and your financing situation gets worse," Kennedy says.

Many ordinary Chinese are seeing their real estate investments evaporate

Chinese households have 70% or more of their asset wealth in their apartments. Evergrande's collapse, although long anticipated, comes as a blow to some, says Roberts.

Another smaller Chinese property developer, Country Garden, also recently got in trouble.

"They're very worried. They're seeing their one big asset depreciating," he says.

"They own their apartment, and in some cases more than one," he says. "When the property market is doing as badly as it's doing in China ... there's sort of a negative wealth effect for consumers and they don't want to spend."

The drawn-out liquidation of Evergrande means ordinary investors who just wanted to buy an apartment and larger institutional investors "are going to need to stand in line, and the courts are going to have to figure out who is going to be at the head of that line and get paid," Kennedy says.

It's unlikely to have much immediate impact on U.S. consumers

Diana Choyleva, a senior fellow on China's economy at the Asia Society, says Evergrande's investors — both foreign and domestic — will see the biggest impact from Monday's ruling in Hong Kong.

"This is more of an outside investor focus," she says.

So U.S. consumers are unlikely to see much impact, at least in the short term. The time horizon to wind down Evergrande could take a while too, further mitigating its impact, she says.

While the Evergrande case was brought in Hong Kong because that's where the company's shares are listed, Choyleva says that Guangzhou, where Evergrande is based, "is not one of the three Chinese cities that mutually recognize liquidation orders," she says.

"So the liquidator could find it hard to take control of Evergrande subsidiaries in mainland China," she says. The process of liquidating the company "will be protracted."

Evergrande indicates a broader concern about China's economy that may be far-reaching

Beijing has come to recognize that an export-led economy on the scale that China has built in recent decades cannot go on forever, and it has tried to promote more domestic consumption to take up some of the slack.

However, the implosion of Evergrande could prove a blow to confidence both inside and outside China, Kennedy says. "There is the confidence about the company itself and the financial problems that it's gotten into and what that means for the real estate sector," he says.

"The next is what is people's confidence in the Chinese government's ability to manage this process in a fair, dispassionate, objective way," he says.

Choyleva and others see the potential for deflation ahead as the Chinese economy struggles with a number of issues going forward. In November, consumer prices in China fell at their fastest rate in three years.

China "should be on American's radar because, first of all, China is a huge economy," she says. "If China is having severe deflation at home, pretty much the only choice left would be [for it] to export deflation."

At first glance, that would seem to benefit consumers buying Chinese-made goods. Instead, it's more likely to mean that U.S.-based competitors will need to lower their prices to compete with a flood of ever-cheaper Chinese products.

"That translates into businesses closing, jobs being lost and consumers being worse off," Choyleva says.

Roberts sees similar concerns. The U.S. and China, he says, "are deeply entwined," and most top U.S. multinationals "secure a significant portion of their revenues and profits from the China market or their supply chains start there."

Meanwhile, China is pumping money into manufacturing to try to offset its slowing economy.

"Ultimately, [China] is going to be producing a lot of goods that they need to sell somewhere, and they're going to be selling them on the cheap. So I would imagine [that] could be a deflationary force."

Copyright 2024 NPR. To see more, visit

Scott Neuman is a reporter and editor, working mainly on breaking news for NPR's digital and radio platforms.
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