China Evergrande Group, a troubled developer, has filed for bankruptcy protection in the US as part of a massive debt restructuring. The move comes as concerns grow over China’s property crisis and its impact on the weakening economy. In an attempt to support struggling economic activity, China has unexpectedly lowered interest rates, but analysts believe that stronger measures are needed to reverse the downward spiral. Once the top-selling developer in China, Evergrande has become the face of an unprecedented debt crisis in the country’s property sector. The company has sought protection under Chapter 15 of the US bankruptcy code, which safeguards non-US companies undergoing restructurings from potential lawsuits and asset limitations in the US. This procedural step indicates that the company is close to completing its restructuring process after negotiating with creditors for over a year and a half. During this process, Evergrande will ask the US court to recognize schemes of arrangement for its offshore debt restructuring in Hong Kong and the British Virgin Islands. The company’s offshore debt restructuring amounts to $31.7 billion and includes bonds, collateral, and repurchase obligations. It will communicate its restructuring proposal to creditors later this month. The property crisis in China has also raised concerns about contagion risks to the financial system, further destabilizing an already weakened economy. As a result, there has been a rise in defaults by Chinese property developers, leaving unfinished homes and unpaid suppliers, damaging consumer confidence. The crisis has also led to fears of a liquidity crisis among Chinese asset managers and developers. In response, China has taken steps to lower interest rates and has introduced measures to revive the stock market, but these efforts have not fully reassured global markets. Economists are warning that China may miss its growth target unless additional support measures are implemented. Despite the challenges, experts believe that a full-blown financial crisis is unlikely, but officials need to handle the situation carefully to avoid a policy mistake.
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