The focus is on China again, with the country’s real estate market at the center of economic jitters. Construction, making up a substantial quarter of China’s GDP, faces seismic disruption, rocking confidence as the aftershocks threaten to permeate other sectors. Lingering repercussions from stringent zero-COVID measures compound the unease.

The latest: China Evergrande (OTCPK:EGRNQ), the world’s most indebted property developer, faces a Hong Kong court’s directive to liquidate following a judge’s unequivocal ruling that “enough is enough.” With liabilities exceeding $300 billion, Evergrande (OTCPK:EGRNQ) initially defaulted in 2021, but court proceedings and restructuring negotiations prolonged the suspense amid hopes of a government lifeline. Trading in Evergrande (OTCPK:EGRNQ) shares halted after a freefall of over 20%, with an impending liquidation poised to send shockwaves through Chinese markets, compelling authorities to contain an escalating crisis.

Efforts to stem the fallout have already materialized as Chinese regulators imposed restrictions on stock short-selling to bolster market stability. Exchanges in Shenzhen and Shanghai declared that investors who purchase shares will be unable to lend them for short-selling outside a stipulated lockup period. Another tinderbox in the Evergrande (OTCPK:EGRNQ) saga awaits resolution: the hierarchy of repayment for offshore bondholders. A thorny process looms, determining how China manages foreign creditors.

SA commentary: “It seems China is following Japan’s trajectory in the late 1980s,” noted SA analyst Ploutos Investing. “Japan took nearly three decades to rectify its household and corporate balance sheets. We believe China’s predicament is graver than Japan’s because when Japan’s bubble burst, its population was still expanding. In contrast, China’s population is already in decline. The iShares MSCI China ETF (NASDAQ:MCHI) has plummeted by almost 60% since early 2021 due to China’s waning economic momentum, facing profound long-term structural challenges.”

Related ETFs: NYSEARCA:FXI, NYSEARCA:KWEB, NYSEARCA:CQQQ, MCHI, NYSEARCA:ASHR, NYSEARCA:YINN, NYSE:TDF, NYSEARCA:CHIQ, NYSEARCA:GXC, NYSEARCA:EWH, NYSEARCA:KBA, NYSEARCA:YANG, NASDAQ:CXSE, NYSE:CAF, NYSEARCA:CWEB, NASDAQ:PGJ, NYSEARCA:KURE, NYSEARCA:CHIX

Impact on the Chinese Economy