China Evergrande, the real estate developer giant, filed for bankruptcy protection on Thursday, more than two years after it defaulted on its debt payments.
The company’s collapse in 2021 followed defaults by smaller developers, and signaled the beginning of a slow decline for China’s real estate sector that now threatens to hurt the country’s broader economy. Another giant developer, Country Garden, is staring into default of its own after failing to make payments to lenders and holding $200 billion in unpaid bills.
Evergrande’s bankruptcy petition, filed in US Bankruptcy Court for the Southern District of New York, comes as the company continues to try to clear dizzying levels of debt. As of the end of last year, Evergrande reported commitments totaling $335 billion.
The company, which has subsidiaries with assets in the United States, is negotiating with its creditors in Hong Kong and the British Virgin Islands. It said in a statement on Friday that it was “moving forward with its foreign debt restructuring as planned” and was seeking US court approval.
That Evergrande is still negotiating with its creditors is a sign of the slow collapse facing China’s real estate market.
Long the main path for millions of Chinese to build wealth, the housing sector actually came to a halt due to a shift in government policy several years ago to cool down the real estate market. Chinese leader Xi Jinping ordered that homes be for living, not for speculation. Then, in 2020, the government cracked down on excessive borrowing, which limited real estate companies’ ability to raise funds and led to a series of defaults.
The policy change sharply compensated for a decades-long bountiful housing market that ran parallel to China’s rise as a global economic powerhouse, but was marred by overbuilding and risky financial practices.
Home buyers frequently took out mortgages to purchase apartments before construction was completed, providing developers with a steady stream of revenue that they used to operate and build more homes. With the market slowing, consumers are left in debt and with no home to show for it.
Evergrande had sold 720,000 apartments that had not yet been completed by the end of last year, according to research firm Gavekal Dragonomics.
Adding to housing market woes, China’s overall economy, the world’s second largest, is struggling to recover after three years of harsh “zero Covid” measures that have left companies wary of hiring, consumers reluctant to spend, stocks suffering and homeowners wary of buying. .
“China’s real estate sector has undergone an unprecedented correction,” analysts at Nomura wrote in a research note this week.
Country Garden, which said it expects losses in the first half of this year to rise to $7.6 billion, has yet to complete nearly 1 million apartments in hundreds of cities in China, by one estimate.
Commentators on Chinese social media this week reacted to news of Country Garden’s financial downturn with fury, some invoking the painful memory of Evergrande’s floundering two years ago.
Alexandra Stephenson And Daisuke Wakabayashi Contribute to the preparation of reports.