Evergrande’s $81 billion loss renews China’s real estate woes

Chinese real estate developer Evergrande has disclosed losses of $81 billion over 2021 and 2022, underscoring the significant debts that remain a concern for the financial health of the Chinese property sector and the world’s second-largest economy.

Evergrande’s total liabilities continued to grow in 2022, reaching $335 billion compared to just $251 billion in assets. This disclosure underscores the Chinese government’s tricky effort to tackle real estate debt without bursting a possible property bubble, as it tries to ensure a tepid post-pandemic recovery doesn’t get knocked off track by a worsening real estate slump. The Chinese economy missed expectations to grow by 6.3% year over year in the second quarter, partly due to falling property investment. Lingering uncertainty over Evergrande’s fate reflects the poor state of the sector and threatens to worsen it, analysts warn.

Evergrande’s insolvency is related to the cooling of housing sales and the increased pressure for indebted property developers to finish projects. The continued insolvency means that simple debt restructuring may be unable to save Evergrande, which is tantamount to disaster for the company’s creditors.

The sluggish real estate sector, which still accounts for a quarter of the economy’s growth, threatens China’s post-pandemic recovery. In late 2021, Evergrande slid into financial distress, causing alarm worldwide. Instead of letting the company implode under a $300 billion pile of debt, Chinese authorities opted for a controlled demolition; managing the corporation through a gradual collapse. Since then, the company has continued to limp on, posing a continual headache for policymakers trying to restore confidence in the real estate sector.

So far, Evergrande has neither collapsed nor significantly improved its financial situation. Most of the $81 billion net losses disclosed on Monday was accumulated in 2021, resulting in a crisis and promises to restructure at the end of that year. Even last year, it still reported nearly $15 billion in net losses, underscoring how the company has struggled to substantially resolve its insolvency problems.

Hong Kong-traded shares in Evergrande have been suspended since March 2022, meaning the company is just two months away from being delisted from the stock exchange. Evergrande will meet with its overseas creditors this month to try to reach a deal on debt restructuring.