Last week, a Hong Kong court ruled that the largest indebted property developer in the world, Evergrande, would be liquidated, two years after the company defaulted on its debt in late 2021. Much of the media reporting on the decision focused on whether foreign creditors would ever recoup their losses from Evergrande, as the Chinese government has already said it will prioritize completing the group’s existing projects, though how this will happen is less clear.
But beyond the question of who will get repaid, Evergrande’s liquidation opens up a slew of larger and more profound questions about the future of the Chinese economy, especially the relationships between the central government, local governments, the private sector and households.
The liquidation of Evergrande is not an accident. It is part of a larger crackdown on the private sector and government collusion that President Xi Jinping launched at the very start of his term, beginning in 2013 with the Anti-Corruption Campaign, which has become one of the most consequential and longest-running campaigns in the history of the People’s Republic of China. Taken as a whole, this crackdown has fundamentally changed the relationship between the Communist Party and the business community, creating deep distrust and fear, while leading to capital flight and a deep downturn in confidence. The Anti-Corruption Campaign was followed by other policies that put the private sector on notice that old patterns of behavior would no longer be tolerated. Xi’s “new normal” would include more discipline and oversight.