The Chinese court has just made a decision that could send shock waves through the global economy

A Hong Kong court ordered on Monday that a major Chinese developer with hundreds of billions in liabilities be liquidated, potentially prompting even more foreign capital to flee the troubled country and disrupting global investment, according to Reuters.

The world's most indebted developer, China Evergrande Group, and its liabilities of more than $300 billion must be liquidated after the company failed to come up with a restructuring plan despite being told to do so years ago two years old seconds to Reuters. The liquidation could lead even more foreign investors to pull funds out of the Chinese market, sending shockwaves through the global economy as capital flees China's struggling financial system.

“It's time for the court to say enough is enough,” Linda Chan, the judge who handed down the decision, said on Monday, according to Reuters. Chan appointed global consultancy Alvarez & Marsal to run the liquidation to protect value from creditors as Evergrande chairman Hui Ka Yan is under investigation for alleged wrongdoing.

China's biggest developer headed for liquidation with ($333 billion in debt) … Evergrande's $17 billion in dollar bonds traded below a penny.: capital is gone stop at 16c. Total removal from the system as its CEO is also under police control. China's so-called “miracle” was just a mirage.#China pic.twitter.com/nqtJaipqjS

— Kyle Bass (@Jkylebass) January 29, 2024

The liquidation could increase already high projections of foreign capital outflows to China by 2024, with the Institute of International Finance estimating that $65 billion in foreign cash will leave the country's economy during the year. The projected losses are far greater than the already huge outflow recorded in 2023, with $31 billion leaving the country.

The collapse of Evergrande comes in the middle of a wider Chinese housing crisis that began in the wake of the COVID-19 pandemic, with companies responsible for around 40% of the country's households defaulting on their debt by 2021. The country also saw a large increase of real estate adjudications in 2023, reaching a record. of 796,000, 36.7% more year-on-year.

The debt-ridden real estate sector was once a boon for China's emerging economy, but has since become a to drag on growth, with the country unable to resume the rates seen before the COVID-19 pandemic. China's economy grew at a pace of 5.2% in 2023, below expectations, while pre-pandemic growth rates were above 6%, with factors such as urban disposable income and confidence of consumers who also performed poorly.

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