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Chinese real estate giant Evergrande, the most indebted property developer on earth, filed for bankruptcy in the US on Thursday. The company applied to a US court for protection from its creditors.

In the news: Evergrande has invoked Chapter 15 of U.S. bankruptcy law.

  • Chapter 15 protects foreign companies with assets in the US undergoing restructuring from US creditors. It will give Evergrande access to domestic courts in the US. Subsidiary Tianji Holdings is also invoking Chapter 15.
  • Evergrande carries a mountain of debt of some $330 billion, or about 2 percent of China's GDP. After the company was unable to make interest payments in 2021, China's real estate industry . After a series of defaults, thousands of property buyers were left with unfinished homes.
  • Last month, it was revealed that Evergrande had suffered losses of some $81 billion in 2021 and 2022. This already raised fears among investors that the company would not survive for long.
  • In an application to the U.S. District Court, Evergrande sought recognition for restructuring negotiations in Hong Kong, the Cayman Islands and the British Virgin Islands. According to the company, creditors will be able to vote on those this month. China Evergrande New Energy Vehicle Group, the company's EV arm, also announced a restructuring plan Monday.

Shockwaves

  • The application comes as China's real estate sector squeaks and creaks again. Country Garden, another real estate mastodon from the country, also took firm hits on the stock market this week when it was revealed that it two interest payments in August.
  • The real estate sector accounts for 30 percent of GDP in China, the world's second-largest economy. Because of its size, there are fears that the crisis will spread to other sectors of the Chinese economy. The latter is failing to recover from the Xi government's draconian "Zero COVID" measures.
  • In August, it was revealed that consumer prices in China fell for the first time in more than two years. In other words, deflation has set in. Calls for government stimulus measures are getting louder and louder. After all, if prices fall, demand for products also falls, which could lead to large-scale job losses.

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