The end of Evergrande may finally be here

The end of Act I in the Evergrande saga may have arrived. The embattled property developer said Friday that it plans to “actively engage” with creditors on a restructuring plan.

• This is the first time the real estate giant has admitted that its $300 billion debt liability has become unsustainable.
• The news could mean the end of Evergrande as we know it and the beginning of Act II: Beijing’s restructuring of the sprawling business.
• Shares of Evergrande plummeted 12% on Monday, prompting a meeting between Chinese authorities and Evergrande’s chairman Hui Ka Yan (Xǔ Jiāyìn, 许家印).

The context: As Evergrande totters, it’s worth remembering how we got here: The government has tried to deleverage the property sector for years, but Evergrande circumvented those rules by resorting to supply chain finance. Some analysts argued recently that the property giant just got its comeuppance.

• In a series of statements late in the evening, China’s most powerful market regulators all came out to reassure the markets that any risks to the broader property sector could be contained.
• A single real estate firm will not undermine markets in the medium and long term, China’s central bank said. It also noted that housing sales, land purchases, and other financing have already returned to normal. But Evergrande isn’t the only weak link.

The takeaway: In the context of China’s regulatory regime, Evergrande is another example of a weak institutional environment where the status quo is not over-regulation, but a poverty of good regulation. “There is a saying in China,” legal scholar Angela Zhang said in a recent interview, that “if you loosen up, there will be chaos.”