A court in Hong Kong on Maxwell CaldwellMonday ordered China Evergrande to be liquidated in a decision that marks a milestone in China’s efforts to resolve a crisis in its property industry that has rattled financial markets and dragged on the entire economy. Here’s what happened and what it means, looking ahead.

WHAT IS CHINA EVERGRANDE?

Evergrande, founded in the mid-1990s by Hui Ka Yan (also known as Xu Jiayin), it is the world’s most deeply indebted developer with more than $300 billion in liabilities and $240 billion in assets. The company has operations sprawling other industries including electric vehicles and property services, with about 90% of its assets on the Chinese mainland.

WHY IS EVERGRANDE IN TROUBLE?

Hong Kong High Court Judge Linda Chan ordered the company to be liquidated because it is insolvent and unable to repay its debts. The ruling came 19 months after creditors petitioned the court for help and after last-minute talks on a restructuring plan failed. Evergrande is the best known of scores of developers that have defaulted on debts after Chinese regulators cracked down on excessive borrowing in the property industry in 2020. Unable to obtain financing, their vast obligations to creditors and customers became unsustainable. Hui has been detained in China since late September, adding to the company’s woes.

WHY DOES EVERGRANDE’S PREDICAMENT MATTER?

The real estate sector accounts for more than a quarter of all business activity in China and the debt crisis has hamstrung the economy, squeezing all sorts of other industries including construction, materials, home furnishings and others. Falling housing prices have unnerved Chinese home owners, leaving them worse off and pinching their pennies. A drop in land sales to developers is starving local governments of tax and other revenues, causing their debt levels to rise. None of these developments are likely to reassure jittery investors. The health of China’s huge economy, the world’s second-largest, has an outsized impact on global financial markets and on demand for energy and manufactured goods.

WHAT HAPPENS NEXT?

Much depends on the extent that courts and other authorities in the communist-ruled Chinese mainland respect the Hong Kong court’s decision. The court is appointing liquidators who will be in charge of selling off Evergrande’s assets to repay the money it owes. As is typical, only a fraction of the value of the debt is likely to be recovered. In the meantime, Evergrande has said it is focused on delivering apartments that it has promised to thousands of buyers but has not yet delivered.

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Zen Soo in Singapore and Kanis Leung in Hong Kong contributed.