Evergrande was once China’s top real estate developer, but ever since it defaulted on loans in 2021 the company has been in a kind of slow-motion collapse. With more than $300 billion in debts and contractors who hadn’t been paid, there seemed to be no way for the company to recover.

The central problem at Evergrande (and other, similar developers) seems to be that it was using current deposits on as-yet-unbuilt apartments to cover the costs of building apartments it had already been paid for. That kind of ponzi scheme obviously doesn’t work when no one is willing to risk more money (placing an order for a future project) because the company has defaulted on a loan. Finally, today, a judge in Hong Kong called it a lost cause and ordered the company to dissolve so its assets could be sold.

Months after China Evergrande ran out of cash and defaulted in 2021, investors around the world scooped up the property developer’s discounted I.O.U.’s, betting that the Chinese government would eventually step in to bail it out.

On Monday it became clear just how misguided that bet was. After two years in limbo, and with over $300 billion in debt, Evergrande was ordered by a judge in Hong Kong to liquidate, a move that will set off a race by lawyers to try to find and grab anything belonging to Evergrande that can be sold…

The order means that Evergrande, which has been limping along for two years, unable to pay its debts or function normally but still in operation, will now likely face a protracted period dismantling a massive business with projects that span hundreds of cities and unrelated businesses like an electric vehicle company.

But there’s a catch here and it’s a fairly huge one. The judge who ordered the liquidation is in Hong Kong. Most of the company’s assets are in mainland China. The way this is supposed to work is that a mainland judge is supposed to take up the order and make sure it gets carried out. But you’ll be shocked to learn that it doesn’t actually work that way in China very often.

There isn’t a lot left in Evergrande’s sprawling empire that still has value. And any assets that are valuable may be off limits because property in China has become intertwined with politics…

Under a mutual agreement signed in 2021 between Hong Kong and Beijing, a mainland Chinese court would recognize the Hong Kong court-appointed liquidator to allow creditors to take control of Evergrande assets in mainland China. But so far only one of five such requests to local Chinese courts has been granted.

All of that is a nice way of saying that the order to liquidate assets may dray on for years or may just be ignored. Honestly, it’s hard to imagine a worse outcome for China’s economy. The collapse of Evergrande is bad news but at least its dissolution is a familiar outcome to foreign investors who expect this to happen to failed companies. Also, it would allow some of them to recoup at least a portion of their losses.

But if politics intervenes and Evergrande’s mainland operation isn’t dissolved after a court order, suddenly investors realize how little confidence they can have in China, not to mention that won’t be getting any of their money back.

If creditors outside the country are unable to recoup some of their losses, it would be another blow to confidence in China’s business environment. Foreign direct investment in China’s economy fell by 8 percent last year, the first decline since 2012.

“Evergrande shows to foreign investors how risky it is to invest in Chinese entities in Hong Kong,” García Herrero said. “It was clear before, but with the liquidation that does not allow any access to assets, it will be even more crystal clear.”

And on top of all of this, there’s still the fact that Evergrande is just the first of many companies in similar positions. Next up could be Country Garden which has also defaulted and which also has at least $200 billion in debts. Today’s actions may be just the start of a new trend that drags on for most of this year.