A Flashing Red Warning for Chinese Real Estate

It said it had $250 billion... but it was barely a tenth of a percent of that.

On August 25, Evergrande, once China's largest property developer, was formally delisted from the Hong Kong Stock Exchange.

Its stock, already suspended for months, was finally wiped away.

That marked the end of a company that had racked up more than $300 billion in liabilities and once claimed more than $250 billion in assets.

But liquidators have since revealed that Evergrande's actual recoveries total less than $255 million.

The "assets" included things like club memberships, a Monet painting, and a fleet of luxury cars.

It's a flashing red signal to anyone still hoping China's real estate woes will quietly resolve. And it's a warning about how the country treats foreign money...

Inflated assets, weak legal protection, and Beijing picking winners...

Real estate has long been one of the most important investment categories in China. It's reportedly about 25% of the country's GDP... compared with roughly 16% in the U.S. And it has been a cornerstone of both individual wealth and government-driven economic growth.

At the heart of China's real estate market was leverage. Developers could borrow huge sums to finance mega projects. They knew that land values would keep rising and credit would stay cheap.

Evergrande took this to the extreme. At its peak, the company managed more than 1,300 projects across 280 cities.

It even started putting its money into things like electric vehicles and bottled water. But behind all that was an opaque web of debt and government support that disguised the firm's true condition for years.

As we covered two years ago, China's real estate market has carried a huge credit risk.

Now that the game is up, the liquidation process is exposing just how fragile the system really is.

When a Hong Kong court issued a winding-up order in 2024, it handed control of Evergrande's offshore assets to liquidators.

But there was a catch... they could only access about $3.5 billion worth of holdings. Most of those were outside mainland China.

Beijing has made it clear that finishing half-built apartments for Chinese homeowners is a higher priority than paying back foreign creditors.

Overseas investors are stuck holding the bag...

One of the court-appointed liquidators even admitted there's no way to provide guidance about what lenders may get back due to the murky asset base.

In an open economy, distressed asset recoveries usually return at least a fraction of the original investment.

In China, creditors are discovering that their contracts may be worthless if they clash with Beijing's priorities.

Even more troubling is how many other developers are on the same path. Country Garden (2007.HK), another giant in the sector, has missed multiple interest payments and warned of "major uncertainties" within the past few years. Dozens of others are either in default or restructuring.

What began as a property downturn is now a broader reckoning. Foreign investors are learning that Chinese real estate isn't just risky... It may be unrecoverable.

This is a preview of what's to come...

Less than 1% of all offshore debt tied to Evergrande has been recovered so far. That means global investors are sitting on tens of billions in write-offs. And they have little hope of getting anything back.

Even as liquidation proceedings move forward, foreign claimants are stuck in limbo.

Meanwhile, China's leadership has made it clear that domestic political and social priorities will always come first. That includes bailing out local governments and finishing construction projects for homebuyers... even if it means abandoning international obligations.

For investors, the message couldn't be clearer. China's legal system does not operate like those in developed markets. Asset rights are subject to shifting policies. Transparency is minimal. And the government has the final say on major transactions.

When you can't trust that a country will play fair, you shouldn't play at all.

Regards,

Joel Litman
September 16, 2025

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