China’s real estate crisis has deepened as property giant Evergrande filed for bankruptcy protection in the United States, news agency the BBC reported.
Filing for bankruptcy in the US will allow Evergrande to protect assets in the US as the company tries to sort out a multi-billion dollar deal with creditors.
China Evergrande Group defaulted on its debts in 2021 and scared investors, rattling global financial markets.
Problems in China’s real estate market are adding to concerns regarding the wellbeing of the world’s second largest economy.
The protection against bankruptcy was filed under Chapter 15, a rule which protects American assets of a foreign company while it restructures its debts.
Evergrande’s real estate units have 1,300 projects in more than 280 Chinese cities. It is also an electric car maker and also has a football club. The real estate giant is working to renegotiate its agreements with creditors as it has defaulted on its debt payments.
It became the world’s most heavily indebted property developer as its debts mounted to more than $300bn. Evergrande’s shares have been suspended from trading since last year.
Evergrande lost more than $80bn in the last two years, the BBC report said.
Not just Evergrande but another Chinese property giant, Country Garden, said it could face losses worth $7.6bn for the first six months of 2023. Chinese real estate giants are struggling to find the money needed to complete their projects.
Experts speaking to the news outlet said that these unfinished projects must be finished to overcome the problems and also pointed out that many homes are pre-sold but once construction stops buyers no longer make mortgage payments, thus straining the financers.
The Chinese economy has slipped into deflation as consumer prices fell in July for the first time in more than two years, the government said. China’s recovery prospects have also been threatened by sharp fall in imports and exports. In a bid to boost the economy, the Chinese central bank also cut key interest rates for the second time in three months.
Exports fell by 14.5% in July 2023 compared to July 2022 and imports also dropped by 12.4% during the same timeframe.