Editorial | Evergrande wind up signals sunset for ‘too big to fail’ in China
- The pain of this colossal corporate failure will be worth it if the country can diversify its growth strategy away from the addiction of property development
The decision by Hong Kong’s High Court to order the wind up of China Evergrande Group will ideally close the book on one of the most spectacular corporate failures since China launched its economic opening up and reform drive in the 1980s.
It is a landmark moment in more ways than one. The example of Evergrande has become symbolic of overreach in a property sector addicted to heavily leveraged growth, and a sign of the Chinese leadership’s determination to shatter the mould of government rescues for firms deemed “too big to fail”.
That China Evergrande was able to rack up US$328 billion in liabilities to become the world’s most indebted property developer is astounding on its own.
Sued by creditors 18 months ago, it managed to successfully stave off the inevitable in seven previous hearings, but in the end the court’s patience had clearly worn thin.
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With the exhortation that it was “time for the court to say enough is enough”, Justice Linda Chan granted the winding-up order yesterday morning and a provisional liquidator was appointed by the afternoon.
There is still room for an appeal, but should that bid fail, the process of liquidating assets and paying off Evergrande’s offshore and domestic creditors will begin.