Troubled Chinese developer told to raze resort complex

The Danzhou government has ordered the demolition of the Evergrande project on the southern island province of Hainan. Above, a section of the resort complex. CHINATOPIX 2019 an announcement made through the Shenzhen Stock Exchange in southern China.

Evergrande said the bond is due to mature in January 2023. It gave no indication how long investors would be asked to postpone repayment.

Economists say Beijing can keep Chinese lending markets functioning normally in the event of an Evergrande default, which looks likely. However, they say Chinese leaders want to avoid sending the wrong signal by arranging a bailout at a time when they are trying to force companies to reduce surging debt levels.

The company gave no indication of the possible loss from the demolition of the buildings on Ocean Flower Island. It said other buildings on the island weren’t affected by the order.

Evergrande, the global real estate industry’s most-heavily-indebted developer, warned last month it might run out of cash to keep up with debt payments and other obligations.

The company says it has $350 billion in assets and $310 billion in debt, but it has struggled to sell assets fast enough to keep up payments to bondholders. Construction of some projects was temporarily suspended after contractors complained they weren’t being paid.

Tuesday’s announcement said buyers in 2021 signed contracts to purchase property worth a total of $70 billion.

Beijing tightened restrictions on developers last year in a campaign to rein in corporate debt that is seen as a threat to economic stability. The ruling Communist Party has made reducing financial risk a priority since 2018.

The Danzhou government’s order said Evergrande’s project violated a national urban planning law. It said the government will organize demolition if the company fails to act.

The Hainan government ordered an investigation last year of Ocean Flower Island, a complex of hotels, an amusement park and other facilities, according to news reports. They said some building permissions were revoked and fines of $34 million were imposed for planning and construction violations.