Evergrande: Why should I care about the crisis-hit Chinese property giant?

The crisis at property developer Evergrande has taken a new turn as its shares have been removed from the Hong Kong stock market.

It comes after the shares were suspended from trading in January 2024 when the Hong Kong High Court ordered the company to be wound up.

In March of the same year, Evergrandes founder Hui Ka Yan was fined $6.5m (£4.8m) and banned from Chinas capital market for life for his company overstating its revenue by $78bn.

The company was declared to be in default in 2021 after missing a crucial debt repayment deadline.

Evergrande, formerly known as the Hengda Group, was founded by Mr Hui in 1996 in Guangzhou, southern China.

At the time of its collapse, Evergrande had some 1,300 projects under development in 280 cities across China.

The Evergrande Group as a whole encompassed far more than just real estate development.

Its businesses ranged from wealth management to making electric cars. It even owned a controlling stake in the countrys most successful football team, Guangzhou FC.

Mr Hui was once Asias richest person with his fortune estimated at $42.5bn (£31.6bn) by Forbes, but his wealth plummeted as Evergrandes problems deepened.

Evergrande expanded aggressively to become one of Chinas biggest companies by borrowing more than $300bn.

But in 2020, the Chinese government brought in new rules to control the amount owed by big real estate developers.

The new measures led Evergrande to offer its properties at major discounts to ensure money was coming in to keep the business afloat.

That meant the company struggled to meet the interest payments on its debts.

Since the start of the crisis Evergrandes shares have lost more than 99% of their value.

In August 2023, the firm filed for bankruptcy in New York, in a bid to protect its US assets as it worked on a multi-billion dollar deal with creditors.

Evergrandes problems and the property crisis as a whole have hurt the Chinese economy as the real estate industry accounted for about a third of the countrys gross domestic product (GDP), an annual measure of all economic activity.

It was not only a significant driver of growth but also a major source of revenue for local governments.

A sharp fall in investment and fund raising activities in real estate have impacted the financial sector, and allied industries like construction, which are a huge source of employment.

At the grassroots level, it has hit ordinary people in China hard as many families put their savings into property.

All of this has helped put pressure on consumer spending, which Beijing sees as crucial to boosting economic growth.

Through the property crisis the Chinese government has taken a number of measures to help shore up the industry and the economy.

Beijing has poured hundreds of billions of dollars into measures including the country’s central bank providing low-interest loans for state-controlled banks to support struggling real estate projects.

There has also been help for home buyers and incentives to purchase new household appliances.

But it did not roll direct bailouts for the countrys struggling developers, partly to avoid encouraging more risky behaviour.

While the property market was once crucial to Chinas economic growth, President Xi Jinping’s focus has changed to competing with US to gain the lead in high-tech manufacturing and AI.

So the ruling Communist Party‘s economic priorities have shifted to areas like renewable energy, electric vehicles, automation and robotics.