Embattled developer China Evergrande Group has filed for bankruptcy protection in a US court as part of one of the world’s biggest debt restructuring exercises, as anxiety grows over China’s worsening property crisis and a weakening economy.

Once China’s top-selling developer, Evergrande has become the poster child of the country’s unprecedented debt crisis in the property sector, which accounts for roughly a quarter of the economy, after facing a liquidity crunch in mid-2021.

The developer has sought protection under Chapter 15 of the US bankruptcy code, which shields non-US companies that are undergoing restructurings from creditors that hope to sue them or tie up assets in the US.

The filing is procedural in nature, but the world’s most indebted property developer with more than $300 billion in liabilities has to do it as part of a restructuring process under US law, two people familiar with the matter said.

The sources declined to be named due to the sensitivity of the matter.

Evergrande declined to comment.

Evergrande’s offshore debt restructuring involves a total of $31.7 billion, which include bonds, collaterals and repurchase obligations. It will meet with its creditors later this month on its restructuring proposal.

A string of Chinese property developers have defaulted on their offshore debt obligations since then, leaving unfinished homes, plunging sales and shattering investor confidence in a blow to the world’s second-largest economy.

The property sector crisis has also fanned contagion risk, which could have a destabilising impact on an economy already weakened by tepid domestic consumption, faltering factory activity, rising unemployment and weak overseas demand.

A major Chinese asset manager missed repayment obligations on some investment products and warned of a liquidity crisis, while Country Garden, the country’s No 1 private developer, has become the latest to flag a stifling cash crunch.

All of this comes at a time when property investment, home sales and new construction have contracted for more than a year.

Morgan Stanley this week followed some of the major global brokerages to cut China’s growth forecast for this year. It now sees China’s gross domestic product (GDP) growing 4.7 per cent this year, down from an earlier forecast of 5 per cent.

China is targeting 5 per cent annual growth for this year, but an increasing number of economists are warning that it could miss the goal unless Beijing ramps up support measures to arrest the decline.

China’s economic and property woes as well as the absence of concrete stimulus steps have sent a chill through global markets. Asian shares were headed for a weekly loss of 2.8 per cent, the third straight week of declines. Chinese blue chips dropped 0.5 per cent and Hong Kong’s Hang Seng Index slumped another 1.3 per cent.

China is expected to cut lending benchmarks at a monthly fixing on Monday, with many analysts predicting a big reduction to the mortgage reference rate to revive credit demand and shore up the ailing property sector.

In response to the deepening property market crisis, the central bank reiterated it would adjust and optimise property policies, according to its second-quarter monetary policy implementation report published this week.

Since the sector’s debt upheaval unfolded in mid-2021, with Evergrande at the centre of the turmoil, companies accounting for 40 per cent of Chinese home sales have defaulted, most of them private property developers.