The long, strange saga of Evergrande Group appeared to enter its final chapter Monday, with a Hong Kong court ordering China’s troubled property-development giant to liquidate after failing to reach a restructuring deal with creditors. A key question for investors around the world is what Evergrande’s long-awaited demise means for China’s economy and financial markets. The answer: It doesn’t help the world’s second-largest economy, extending a long-run drag from the beleaguered property development sector on growth.
“Our take is that Evergrande’s liquidation will be yet another headwind to nominal activity,” Arif Haque, an analyst at Piper Sandler, said in a Monday note. Haque said that a 1% year-over-year decline in real-estate investment has had a drag of 0.3 percentage points on China’s nominal gross domestic product. Over the past year, real-estate investment has plunged 16%, which translates into a nominal hit to GDP of 5 percentage points. “Put differently, this property drag explains why GDP growth has shifted down from 10% to closer to 5%,” Haque wrote.
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“Our take is that Evergrande’s liquidation will be yet another headwind to nominal activity,” Arif Haque, an analyst at Piper Sandler, said in a Monday note. Haque said that a 1% year-over-year decline in real-estate investment has had a drag of 0.3 percentage points on China’s nominal gross domestic product. Over the past year, real-estate investment has plunged 16%, which translates into a nominal hit to GDP of 5 percentage points. “Put differently, this property drag explains why GDP growth has shifted down from 10% to closer to 5%,” Haque wrote.
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