The order by a Hong Kong court on Monday to wind up China Evergrande, once the world’s most valuable property company, represents a cautionary tale for investors, other indebted businesses and China’s own leadership.
Most immediately, the liquidation process is set to highlight the sparse legal protection afforded to offshore investors in Chinese assets. A raft of competing international and domestic claims on Evergrande assets bedevils the restructuring of a company with more than $300bn in liabilities. If — as expected — domestic claims take precedence, investor confidence in Chinese assets trading in Hong Kong may be further undermined.
More broadly, it stands as a test of Hong Kong’s authority with mainland China. It is not clear to what extent — if at all — local government entities, courts and creditors across the mainland will acquiesce to orders from Hong Kong to transfer assets they currently possess to a liquidator.