On 29 January 2024, a Hong Kong court handed down the verdict: the liquidation order of China Evergrande Group, a property giant once synonymous with China’s economic boom. The developer’s fall was not just a standalone bankruptcy , but a watershed moment that highlighted the viability of the Chinese economic model and its complex links to the global economy. On 25 August 2025, the company was to be officially delisted from the Hong Kong Stock Exchange [7]. The fall of Evergrande, burdened by a colossal debt of 2.39 trillion yuan ($330 billion) – equivalent to 2% of the country’s GDP [1], serves as a litmus test for Beijing’s governance and shows that a national crisis can have international repercussions.
The Domestic Roots of a Global Crisis
Evergrande’s extraordinary rise and fall is a perfect example of an economic philosophy that prioritised “unmitigated economic growth” [3]. For decades, the company thrived on a high-risk strategy: borrowing heavily to acquire land, then pre-selling apartment units to finance the real estate project [2]. This model transformed the property sector into a national economic pillar, accounting for up to 30% of China’s Gross Domestic Product (GDP) and holding the vast majority of Chinese household wealth [1, 4].
To grasp the scale of this dependence, it is essential to note that Chinese households hold approximately 70% of their wealth in real estate [1, 4]. By comparison, the average for households in the euro area was around 50% in 1999, rising to approximately 62% in 2008 [10]. This disparity underscores the unique vulnerability of Chinese households to fluctuations in the property market.
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However, this relentless expansion created a huge financial bubble [1, 3]. A striking indicator of the unsustainability of Evergrande’s model is the fate of its buyers: “Nearly one million Chinese households bought apartments from Evergrande that the company apparently no longer has the means to finish. These homes will likely be completed, according to experts, but it could take time. Regulators may be forced to help sell these projects to other developers” [3]. These figures illustrate the crisis of confidence and the direct social cost of the collapse.
Furthermore, this property frenzy gave rise to the phenomenon of “Chinese ghost cities”, massive and often unfinished developments that bear witness to overproduction fuelled by debt. Although the narrative surrounding these cities has been amplified, they remain a relevant symbol of the sector’s runaway growth. The problem is not limited to China’s borders, as illustrated by the case of Forest City in Malaysia. This $100 billion project launched by another Chinese giant, Country Garden, largely remains empty nearly a decade after its grand opening – with only 9000 residents out of the 700,000 originally planned [12].
The fateful moment arrived in 2020 when Chinese regulators, seeking to limit excessive financial risks, imposed the “three red lines” policy: firstly, the debt-to-asset ratio must not exceed 70% [6]; secondly, the net debt-to-equity ratio must not exceed 100% [6]; thirdly, the cash-to-short-term debt ratio must be at least 1 [6].
This was the “real trigger” [3]. Evergrande failed to meet any of these three criteria, which severely limited its access to new credit, its financial lifeline [3]. This regulatory intervention was a clear signal that Beijing was prepared to let even the largest and most indebted companies fail to enforce financial discipline [3]. The company’s default in 2021 was the first domino to fall, triggering a wider liquidity crisis that has since seen more than 50 other property developers default on their debts [2].
Audit oversight failure and regulatory consequences
The scale of Evergrande’s financial inaccuracies and its collapse have subjected the role of its auditor, PwC, to scrutiny. The regulatory response has been swift and severe, highlighting a critical failure of audit oversight that contributed to the crisis of confidence.
In September 2024, Chinese regulators imposed a six-month suspension on PwC Zhong Tian’s audit activities in mainland China, accompanied by a record fine of 441 million yuan (approximately $62 million) for audit failures related to Evergrande [8, 9]. This sanction highlighted the seriousness of the firm’s failure to detect or report massive financial irregularities.
PwC’s global network publicly acknowledged this failure, stating that the audit work ‘fell unacceptably below expected standards’ [8]. The scandal has significantly damaged the reputation of the Big Four firm: clients have terminated their relationships, more than 60 PwC China partners have reportedly resigned, and many companies have reviewed or severed their ties with the auditor, reflecting a significant loss of confidence [8].
The international political and economic dimension
Evergrande’s bankruptcy represents a global political and economic challenge. The liquidation decision taken in Hong Kong highlighted the complexity of the international issues at stake, particularly for foreign creditors to whom the company owes some $25 billion [1]. The main obstacle remains the legal firewall between Hong Kong and mainland China, which means that the liquidation decision has ‘very limited immediate impact on Evergrande’s onshore operations or assets’ [1]. This reality suggests that international creditors are likely to suffer substantial losses, which would undermine investor confidence in Chinese financial markets [1].
Beyond financial losses, the crisis poses the threat of exported deflation [4]. With the Chinese economy facing falling consumer prices [2] and declining household wealth [3, 4], largely due to falling property values in a country where households hold most of their assets in real estate, Beijing may be counting on its manufacturing sector to stay afloat [2]. If China faces ‘severe domestic deflation’, it could ‘export deflation’ [4], meaning that an influx of ever cheaper Chinese products could force global competitors to reduce their prices, potentially leading to job losses and business closures abroad [4]. This scenario illustrates how a domestic crisis, born of an imbalanced economic model, can quickly escalate into a geopolitical challenge by disrupting global trade flows.
Edited by Maxime Pierre.
References
[1] CNN. (2024, January 29). Evergrande, symbol of China’s property crisis, heads to liquidation. CNN Business. https://edition.cnn.com/2024/01/29/business/evergrande-ordered-to-liquidate-intl-hnk/index.html
[2] Institute for Youth in Policy. (2024). Economic implications of Evergrande collapse [Policy brief]. https://yipinstitute.org/policy/economic-implications-of-evergrande-collapse
[3] Bogage, J. (2021, September 21). How the China Evergrande crisis poses a global threat. The Washington Post. https://research-ebsco-com.revproxy.escpeurope.eu/c/74iblm/viewer/html/6s5pn5t2q5
[4] Neuman, S. (2024, January 30). What to know about the collapse of China’s Evergrande real estate company. NPR. https://www.npr.org/2024/01/30/1227554424/evergrande-china-real-estate-economy-property-collapse
[5] Research in International Business and Finance. (2023). Is the Evergrande crisis spilling beyond China ? https://www.sciencedirect.com/science/article/abs/pii/S0275531923002064
[6] Yang, C., Zhang, X., Zhu, Y., & Sun, Y. (2023). The impact of three red lines policy on China’s real estate industry. Advances in Economics, Management and Political Sciences, 7, 335–342. https://www.ewadirect.com/proceedings/aemps/article/view/2838
[7] Euronews. (2025, August 12). World’s most indebted company, China Evergrande, delisted from Hong Kong Stock Exchange. https://www.euronews.com/business/2025/08/12/worlds-most-indebted-company-china-evergrande-delisted-from-hong-kong-stock-exchange
[8] China Daily. (2024, September 14). China suspends PwC Zhong Tian for six months, fines 441 million yuan over Evergrande audit failures. China Daily. https://www.chinadaily.com.cn/a/202409/14/WS66e4cc19a3103711928a7f45.html
[9] Reuters. (2024, September 13). China imposes six-month business suspension on PwC’s auditing unit in mainland China. Reuters. https://www.reuters.com/business/finance/china-imposes-six-month-business-suspension-pwcs-auditing-unit-mainland-china-2024-09-13/
[10] De Bondt, G., Gieseck, A., & Tujula, M. (2020). Household wealth and consumption in the euro area. ECB Economic Bulletin, (1/2020). https://www.ecb.europa.eu/press/economic-bulletin/articles/2020/html/ecb.ebart202001_01~6ce994a1f7.en.html
[11] Marsh, N. (2023, December 5). Forest City: Inside Malaysia’s Chinese-built ‘ghost city’. BBC News. https://www.bbc.com/news/business-67610677
[12] Rachman, J. (2024, March 18). Malaysia’s Forest City Went From Boomtown to Ghost Town. Foreign Policy. https://foreignpolicy.com/2024/03/18/malaysia-china-real-estate-countrygarden-forestcity/
[Cover image] Lue, C. (2024, May 10). A large group of cranes standing in front of a tall building [Photograph]. Unsplash. https://unsplash.com/photos/Yngs23gfeDA
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