The Chinese yuan extended its weakness against the US dollar to start the trading week after it was reported China’s most indebted developer, China Evergrande Group, was ordered to liquidate. The real estate developer has been facing financial and legal woes for nearly two years, and the courts determined that “enough is enough.” This could have a ripple effect throughout the Chinese economy and, as a result, impact the yuan.
Hong Kong Justice Linda Chan ordered the liquidation of Evergrande, which possesses more than $300 billion in total liabilities and defaulted on its debt in 2021. The Hong Kong court said that Evergrande failed to provide efficient communications and present resolutions for the last 18 months.
“It is time for the court to say enough is enough,” Chan said in court on Monday.
Evergrande shares were halted after shares cratered as much as 20%. The company’s listed subsidiaries were also suspended.
Market analysts warn that this move will have a ripple effect throughout China’s already struggling financial markets. Before the news, the Chinese stock market was cratering, forcing policymakers to unveil a $280 billion stimulus and rescue package for the equities arena.
“It is not an end but the beginning of the prolonged process of liquidation, which will make Evergrande’s daily operations even harder,” said Gary Ng, senior economist at Natixis. “As most of Evergrande’s assets are in mainland China, there are uncertainties about how the creditors can seize the assets and the repayment rank of offshore bondholders, and situation can be even worse for shareholders.”
Additionally, three other Chinese developers were ordered to liquidate by a Hong Kong court before the latest Evergrande debacle.
Beijing has been facing a series of headwinds this month alone.
The fourth-quarter GDP came in lower than expected, housing prices slumped 0.4%, the unemployment rate ticked up, the economy slipped into deflation, retail sales slowed, and manufacturing activity stagnated.
It is a tough road for the underperforming Chinese economy, particularly as the country’s leadership attempts to achieve a 5% GDP growth rate this year.
The latest developments have impacted the Chinese yuan, which has weakened nearly 1% so far this year.
The USD/CNH currency pair was unchanged in Asian trading at 7.1874. The EUR/CNH dipped 0.02% to 7.7853, from an opening of 7.7870.