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Shares of troubled Chinese real estate giant China Evergrande Group were abruptly suspended from trading on Thursday, Hong Kong’s stock exchange announced. The halt came amid reports Evergrande’s chairman was placed under government surveillance.

Evergrande has been struggling under billions in debt and its restructuring efforts have stalled. The trading suspension reflects deepening uncertainty around the company’s precarious finances and what action Beijing may take.

This represents the second time in two years that Evergrande shares have been suspended from trading in Hong Kong. The opaque nature of operations of China’s largest property developer continues to spook investors.

Evergrande Faces Ongoing Liquidity Crisis

Evergrande has lurched from one crisis to another over the past year as it grapples with over $300 billion in liabilities. The company defaulted on offshore bonds in 2021 and has scrambled to repay suppliers and creditors.

In March, Evergrande announced a long-awaited debt restructuring plan. But last week, the company revealed it has failed to meet restructuring targets due to disappointing property sales.

Evergrande also blamed delays on an investigation into subsidiary Hengda Real Estate by Chinese regulators over disclosure violations. This has prevented the company from issuing new notes to swap for outstanding debt.

The restructuring delays intensify Evergrande’s cash crunch. Earlier this month, the developer missed interest payments to offshore bondholders. Fitch Ratings warned of a “probable” default scenario.

Government Provides Limited Support

Beijing has provided limited support to Evergrande through the turmoil to maintain financial stability. But authorities have generally avoided a full-scale bailout that would cover all liabilities.

Earlier this year, Evergrande reached an agreement to settle dues to onshore bondholders and banks through discounted asset sales and coupon payments. This strategy shifted losses largely to offshore creditors.

Now Evergrande’s restructuring is floundering and its liquidity remains extremely tight based on minimal property sales. Without significantly more government intervention, the risk of total insolvency looms.

“Evergrande is on the edge once again, and its fate largely rests in Beijing’s hands,” said analyst Wu Fan of Central China Securities.

Trading Halt Follows Surveillance Reports

Evergrande requested trading of its shares be suspended on Thursday morning Hong Kong time. The request was approved by the Hong Kong Stock Exchange.

The surprise halt came after media reports that Evergrande chairman and founder Xu Jiayin was placed under government surveillance in mainland China. His whereabouts and status are unknown.

Authorities have not confirmed the reports. But the timing immediately sparked speculation that Beijing is asserting more control over Evergrande and its restructuring process.

Shares last traded at 0.32 Hong Kong dollars. This marks the second major trading suspension since March 2021, when shares were halted for over 17 months.

Offshore Bankruptcy Protection Sought

While struggling to restructure onshore, Evergrande has also sought the aid of offshore courts. In August, the company filed for Chapter 15 bankruptcy protection in the U.S.

The filings cover Evergrande itself and subsidiary Tianji Holdings. Chapter 15 grants a U.S. court authority over cross-border insolvency proceedings.

Evergrande likely hopes to force negotiations with international creditors and halt legal action against its assets abroad. But experts say the offshore filings are unlikely to resolve the core issues sinking Evergrande’s finances.

“Evergrande is still in dire straits despite seeking protection in a U.S. court,” said Ivan Chung, analyst at Moody’s Investors Service. “Its fundamental problem remains weakening liquidity.”

Chinese Economy Hammered by Property Crisis

Evergrande’s woes have contributed to a severe real estate crisis in China that has wreaked havoc across the economy.

Property directly accounts for 25–30% of China’s GDP. The construction slowdown has led to rising unemployment and stagnant local government revenues,compounding economic headwinds.

Beijing has stepped up policy support in recent months to stabilize growth, including rate cuts and infrastructure spending. But the property slump will continue dragging on the economy so long as Evergrande and other developers struggle.

“The health of China’s real estate sector depends critically on whether Evergrande’s debt mountain can be steadily defused,” said Iris Pang of ING Bank. “The risks still appear tilted to the downside.”

Restructuring Outcome Remains Uncertain

Trading in Evergrande shares will resume once the company resolves the issues leading to the suspension, according to exchange filings. But the path forward looks treacherous.

Evergrande has prioritized completing unfinished housing projects to maintain social stability. But without adequate liquidity, construction will further slow across China’s “ghost cities” of stalled developments.

Offshore creditors also seem unlikely to accept heavy losses without a fight. Some warned they may take legal action if not treated equitably compared to onshore lenders.

For now, Evergrande’s fate hangs in the balance as it pleads for more time from international banks and bondholders. Few good options exist, and the suspended shares signify deep doubts over Evergrande’s viability remain.

“Given the limited transparency, an imminent resolution does not appear on the cards,” said analyst Kenneth Ho of Goldman Sachs. “The suspended trading emphasizes Evergrande still faces immense uncertainty.”

Stay tuned for further coverage as the Evergrande saga continues unfolding with global economic implications. The stalled restructuring of China’s largest developer highlights the limits of Beijing’s capacity and willingness to engineer bailouts during an era of slower growth.