The Evergrande Liquidation and Implications for Chinese Real Estate Governance

The delisting of China Evergrande Group from the Hong Kong Stock Exchange on August 25, 2025, marks not just the end of a corporate saga but a pivotal moment in China's real estate governance. Once the country's largest property developer, Evergrande's $45 billion in liabilities and the systematic dismantling of its operations underscore the fragility of a sector long propped up by speculative debtEvergrande: Chinese property giant delisted after spectacular fall^[1]. The liquidation process, now in its final stages, has exposed critical weaknesses in corporate accountability and systemic risk management, while also revealing Beijing's cautious approach to restructuring a sector that accounts for nearly 30% of GDPCourt orders China Evergrande to liquidate^[3].

Corporate Accountability: A New Frontier

Evergrande's collapse has forced a reckoning with corporate governance in China. Liquidators have pursued aggressive legal action against third-party firms, including PricewaterhouseCoopers (PwC), CBRE, and Avista Valuation Advisory, for alleged negligence in audit and valuation reports that masked the developer's financial distressEvergrande: Chinese property giant delisted after spectacular fall^[1]. These lawsuits, seeking to recover $6 billion in dividends paid to executives like founder Hui Ka Yan, signal a shift toward holding auditors and advisors accountable—a departure from the traditionally opaque corporate culture in ChinaChina’s bankruptcy law system moves toward reform^[4].

The legal battles also highlight the challenges of cross-border insolvency. Hui Ka Yan, detained in 2023, has not complied with court orders to disclose his assets, prompting the Hong Kong High Court to appoint receivers to preserve his holdingsEvergrande: Chinese property giant delisted after spectacular fall^[1]. This case underscores the need for clearer legal frameworks to address asset dissipation in multinational bankruptcies, a gap that has hindered recovery efforts for creditors.

Systemic Risk Mitigation: The "Slow Bankruptcy" Strategy

The Chinese government's response to Evergrande's collapse has been characterized by a deliberate "slow bankruptcy" approach. By stretching out the liquidation process, authorities aim to avoid panic among homebuyers and creditors while giving local governments and banks time to absorb the falloutEvergrande’s Delisting Exposes China’s Slow Bankruptcy Trap^[2]. This strategy aligns with broader regulatory reforms, such as the 2020 "Three Red Lines" policy, which curtails developer leverage, and the creation of a "white list" of projects eligible for bank supportEvergrande’s Delisting Exposes China’s Slow Bankruptcy Trap^[2].

However, the slow pace has its drawbacks. As one scholar notes, delayed interventions reduce their effectiveness, exacerbating deflationary pressures and deepening local government debt risksEvergrande’s Delisting Exposes China’s Slow Bankruptcy Trap^[2]. The real estate sector's contribution to falling producer and consumer prices, coupled with a 25% decline in fixed asset investment since 2021, illustrates the broader economic tollEvergrande’s Delisting Exposes China’s Slow Bankruptcy Trap^[2]. Meanwhile, the failure of shadow banking vehicles like wealth management products (WMPs) has exposed vulnerabilities in financial stability, particularly as local governments rely increasingly on municipal bonds to offset declining land transfer revenuesEvergrande’s Delisting Exposes China’s Slow Bankruptcy Trap^[2].

The Path Forward: Reforms and Uncertainties

To address these challenges, China is experimenting with institutional innovations. By 2025, 17 specialized bankruptcy courts and 230 administrator associations have been established to streamline insolvency proceedingsChina’s bankruptcy law system moves toward reform^[4]. Yet, these reforms risk encouraging "zombie lending" as banks seek to avoid the adverse effects of increased bankruptciesCourt orders China Evergrande to liquidate^[3]. The government's emphasis on "establishing the new before abolishing the old" reflects a cautious balancing act between fostering market discipline and maintaining stabilityChina’s bankruptcy law system moves toward reform^[4].

A parallel effort to implement a property tax system, initiated in 2021, aims to decouple local government revenues from land sales. However, progress remains fragmented, with pilots limited to second homes and high-end units in major citiesEvergrande: Chinese property giant delisted after spectacular fall^[1]. This slow rollout complicates efforts to stabilize municipal finances, particularly as local governments inherit underfunded projects from insolvent developers like EvergrandeEvergrande: Chinese property giant delisted after spectacular fall^[1].

Conclusion

The Evergrande liquidation is a cautionary tale of unchecked leverage and weak corporate governance, but it also serves as a catalyst for reform. While legal actions against auditors and regulators signal a move toward accountability, the slow bankruptcy strategy and fragmented property tax system reveal the government's struggle to reconcile market discipline with systemic stability. For investors, the key takeaway is clear: the Chinese real estate sector remains a high-risk, high-uncertainty environment. The success of reforms will hinge on Beijing's ability to enforce transparency, accelerate institutional innovation, and navigate the delicate balance between intervention and market forces.