Shares of troubled Chinese developer Evergrande plummeted by approximately 80% as trading resumed in Hong Kong after a year and a half hiatus. The value of these shares has diminished by over 99% within the last three years, aligning with Beijing’s crackdown on property companies. Evergrande’s crisis is at the epicentre of real estate market turbulence, posing a significant threat to the world’s second-largest economy.
In a recent development, Evergrande disclosed a loss of 33 billion yuan ($4.5 billion) for the first half of the year. This marked an improvement compared to the 66.4 billion yuan loss reported during the same period the previous year. The company highlighted efforts made by its directors to bolster liquidity and its financial standing.
Despite a 44% surge in revenue for the first half of the year, reaching 128.2 billion yuan compared to the previous year, Evergrande’s cash reserves witnessed a 6.3% decline in the same period. The company had halted trading since March of the previous year.
The imperative for policymakers is to prevent financial contagion and limit its impact on the broader financial system, emphasised Qian Wang, Chief Asia Pacific Economist at Vanguard.
China’s property market struggles have added to concerns regarding the post-pandemic recovery of its economy. In response, the country halved a 0.1% tax on stock trading to stimulate the capital market and restore investor confidence. Moreover, China’s central bank cut a key interest rate for the second time in three months to counter declining exports and subdued consumer spending, both of which have hindered the nation’s economic revival.
China’s real estate industry underwent upheaval with the introduction of regulations in 2020 aimed at curbing borrowing by major real estate firms. Once a leading developer, Evergrande expanded aggressively, accumulating debts exceeding $300 billion, making it one of China’s largest companies. The company’s financial troubles have caused ripple effects in the property sector, with multiple developers defaulting on debts, leaving unfinished projects across the nation. In response, Evergrande has worked on renegotiating agreements with creditors and initiated a Chapter 15 bankruptcy protection filing in the United States, further reflecting the complexity of its financial situation.