Will Hong Kong Put the Fear Into China’s Property Builders?

The collapse of China’s massive property bubble is under way and it is wreaking havoc as significant amounts of the debt raised by Chinese property builders is from offshore investors.

Because of (well-founded) concerns on how Chinese Mainland courts would treat foreign concerns, most of these agreements have historically been conducted under Hong Kong law. As a result, foreign creditors have (understandably) hauled their deadbeat Chinese property builder debtors to court there.

While the judgements (especially from Linda Chan, the subject of this Bloomberg article) are unsurprisingly against the Chinese property builders (who have been slow to release credible debt restructuring plans), the big question remains whether the Mainland Chinese government will actually enforce these rulings. It certainly would make life harder on (at least until recently very well-connected) Chinese property builders at a moment of weakness in the sector.

But, failure to do so would also hurt the Chinese government’s goal of encouraging more foreign investment: after all, why would you invest in a country where you can’t trust the legal paper?