A Hong Kong court on Monday ordered the liquidation of China's property giant Evergrande, but the firm said it would continue to operate in a case that has become a symbol of the nation's deepening economic woes.

Once China's biggest real estate firm, its astronomical debt of more than $300 billion had become emblematic of a years-long crisis in the country's property market that had reverberated throughout the world's second-largest economy.

The order kickstarts a long process that should see Evergrande's offshore assets liquidated and its management replaced, after the company failed to develop a working restructuring plan.

The company's executive director vowed the Hong Kong court's decision would not impact its operations domestically, while analysts said the ruling would further erode foreign investor confidence in China.

"(Given) the obvious lack of the progress on the part of the company in putting forward a viable restructuring proposal and the insolvency of the company... I consider that it is appropriate for the court to make a winding up order against the company and I so order," High Court judge Linda Chan said.

She added that Evergrande was expected to discuss a "viable proposal" with creditors, obtain a legal opinion and consult mainland Chinese authorities -- but "none of that has happened".

Chan is expected to hand down her detailed reasons for the winding-up order later Monday and will handle the matter of appointing a liquidator.

'Stability of domestic business'

Evergrande's executive director, Shawn Siu, called the decision "regrettable", but vowed the company's operations in China would continue.

In a statement, he said Evergrande's Hong Kong arm was independent from its domestic subsidiary, and that "the Group will still endeavour to do everything possible to safeguard the stability of its domestic business and operation".

Siu also said the company would "steadily push forward the key work of guaranteeing the delivery of buildings, maintain the quality of property services without being affected".

Shares in Evergrande plunged 20.87 percent to HK$0.16 in Hong Kong following the ruling, before the stock exchange halted trading at 10:19 am (0219 GMT). 

Trading was also halted in Evergrande's electric vehicle subsidiary. 

However, the announcement had little effect on wider stock markets, with Hong Kong and Shanghai both up at the break.

The actual impact on Evergrande's construction activities and housing delivery arrangement in China are "unknown", said Ken Cheung, chief Asian FX strategist at Mizuho. 

But the liquidation "reminds investors of China's property downturn and may keep foreign investors away from returning to Chinese investments for the time being," he said.

The demise of Evergrande, which first defaulted on a debt payment in 2021 and declared bankruptcy in the United States this year, has been closely watched as it was once a pillar of China's economy.

China's construction and property sector once accounted for around a quarter of the nation's gross domestic product.

But President Xi Jinping deemed the debt accrued by Evergrande and other property firms an unacceptable risk for China's financial system and overall economic health.

Widely anticipated

Authorities have gradually tightened developers' access to credit since 2020, and a wave of defaults has followed.

By the end of June, Evergrande estimated it had debts of $328 billion.

Redmond Wong, chief China strategist at Saxo Markets, said "the winding-up of Evergrande's Hong Kong listing entity has been widely anticipated and should not impact the general market much". 

For overseas creditors, the challenge will be on "whether the liquidator will succeed in obtaining recognition and assistance from mainland courts to seize assets in the mainland", he said, calling it a "litmus test for the mechanism". 

Shane Oliver, chief economist at Sydney-based financial services firm AMP, said the decision was "another step" in the ongoing property crisis in China, and will likely be managed "in a way that doesn't cause major contagion effects to other parts of the economy". 

But "it tells us that the property crisis is still far from being resolved, and remains an ongoing drag on the Chinese economy", he said.