Beijing: The filing for bankruptcy by Evergrande, Chinese real estate giant signals the beginning of Beijing’s real estate crisis, CNN reported on Friday.

It serves as a cautionary tale about the “growth-at-all-costs” model that underpinned China’s spectacular growth over the past 30 years.

For decades, Evergrande, once one of China’s most successful real estate developers, gobbled up debt as China’s economy exploded. Demand for housing was so strong, homebuilders often pre-sold apartment units to buyers before construction was complete, CNN reported.

But a sudden shift in policy by China’s leaders two years ago has left the country’s property developers scrambling for cash, compounding financial risks within the world’s second-largest economy.

As per CNN, the story of Evergrande’s downfall began in 2021, when the central government moved to curb excessive borrowing to try to slow the rise in home prices, effectively cutting off a major source of funding for property developers.

Evergrande, which had 300 billion USD in liabilities, couldn’t shore up cash fast enough to make its debt payments.

It defaulted in December 2021, triggering a market panic. A wave of defaults followed, and China’s vast real estate market has yet to recover. The building was suspended on dozens of projects, leaving many “pre-sale” buyers left with no new home and a hefty debt burden, according to CNN.

The steps that will be taken by Beijing to restructure billions of dollars in offshore debts have massive implications for China’s financial system.

Earlier on Thursday, Evergrande filed for Chapter 15 bankruptcy, which is a way for foreign companies to use US bankruptcy law to restructure debt. The process will take time, as Evergrande has roughly 19 billion USD in offshore debts.

Evergrande’s liquidity crisis was just the beginning of the pain. Other large builders in China have since defaulted as they struggle to shore up cash and demand for housing has fallen, CNN reported.

Notably, investors around the world are watching the development cautiously as Country Garden, which employs some 3,00,000 people, missed two payments on its multibillion-dollar debt and said it was considering “various debt management measures.”

The cash-strapped developer’s debt is now seen as a “very high risk” asset, according to Moody’s, which downgraded its rating on Country Garden last week, CNN reported.

Country Garden has until early September to make the payments it missed.

It’s hard to overstate the importance of the property market in China. The industry accounts for as much as 30 per cent of the country’s economic activity, and more than two-thirds of household wealth is tied up in real estate.

But nearly three years of “Zero Covid” restrictions sapped China’s economic growth, and consumers have been reluctant to buy new homes in the face of higher unemployment and falling property values, as per CNN.

Notably, China’s economic engines have been sputtering after a brief surge in activity earlier this year.

Consumer prices last month fell for the first time in more than two years; youth unemployment has been rising so fast, Chinese authorities simply didn’t release the July data. Retail sales, export demand and factory production are all down as well, CNN reported.

While Beijing has made some efforts to help jumpstart demand for housing and free up cash for developers, the days of big, state-funded bailouts for bloated industries appear to be over. It also seems unlikely that China will bail these companies out.

“We must maintain historic patience and insist on making steady, step-by-step progress,” CNN quoted President Xi Jinping as saying recently.