Evergrande’s collapse: Australian experts weigh in on domestic market implications

The liquidation of Chinese real estate titan Evergrande has captured global attention, with Australian legal professionals delving into the potential repercussions for the Australian market and the legal landscape. In 2021, Evergrande was named the world’s most indebted real estate firm, and a Hong Kong court’s recent decision to order the company into liquidation has sparked a massive property crisis in China, leaving over 1,200 projects unfinished.

Giancarlo Romano, a principal at Best Hooper Lawyers and the leader of the property law and transactions team, has voiced concerns over the potential impact on foreign enterprises in China. “The collapse of Evergrande will be a huge test of the fairness for overseas creditors, which could have wider implications for foreign businesses operating in China,” he remarked. He advised Australian companies to closely observe how foreign bondholders and investors are treated in this process and the enforceability of the Hong Kong judgement on assets in mainland China.

In contrast, Samuel Brown, a partner at K&L Gates, presented a more optimistic view, pointing out the disciplined nature of the Australian market in mitigating the risks of such collapses through stringent debt financing regulations. Brown indicated that the Australian market is unlikely to face adverse effects from Evergrande’s troubles. “I don’t expect there to be any adverse fallout for the Australian market as the troubles faced by Evergrande have been known for some time, and the collapse likely anticipated,” he said. He further suggested that the situation might even benefit Australian developers by freeing up supply lines.

Evergrande’s financial woes culminated last December when the firm failed to secure more time to repay its debt to foreign investors, resulting in an outstanding debt of nearly AU$500 billion. Romano raised concerns about the challenges foreign creditors might face in reclaiming funds from Evergrande’s liquidation and speculated on the Chinese government’s potential bailout priorities. “This would further erode international confidence for investment in China, which has the potential of diverting those foreign investment funds into safer pastures like the Australian property market that may drive demand locally in the short to medium term,” he stated. However, he also noted the possibility that Chinese investment in Australian real estate may decline, countering any increase in foreign investment.

Romano also highlighted the broader implications of Evergrande’s collapse on Australia’s economy, particularly its reliance on exports to China. “Evergrande’s collapse serves as a reminder of the vulnerabilities in relying heavily on exports to China. Australia has significantly increased its exports to China over the years, with China currently taking, I believe, around 36 per cent of Australia’s exports,” he explained. The situation underscores the need for Australia to diversify its export markets to mitigate the risks of economic instability in its primary market.