What property giant Evergrande's sentence means for China's economy

China's property giant Evergrande received a harsh verdict on Thursday, as courts in Shenzhen sentenced its founder to life in prison and imposed fines of more than US$2 billion. The collapse of Evergrande, once the leading property developer in China, has been a drag on the country's economy for years. Listed in Hong Kong in 2009, the firm peaked at a market value of over US$50 billion under the leadership of founder Xu Jiayin, also known as Hui Ka Yan.

However, new regulations in 2020 that aimed to curb excessive borrowing in the real estate sector complicated Evergrande's ability to make payments. This led to a prolonged struggle across the industry, with shares plummeting and cash flows drying up. In 2021, Evergrande defaulted on its debt, and a Hong Kong court ordered its liquidation in 2024.

The crisis has had a profound impact on China's economy, as the property sector was a key driver of national growth. Investors and consumers have become increasingly cautious, with new-home prices dropping faster in July than the previous month. Despite efforts by Beijing to manage the situation and minimize turbulence, the central government has maintained a firm stance, signaling that it will not bail out the property sector.

The verdict serves as a strong indication that the government is committed to debt-consciousness among companies. China is still targeting a GDP expansion of between 4.5% and 5.0% this year, its lowest official goal in decades, as the country seeks to stimulate growth and reduce its reliance on real estate and infrastructure investment.