The new Evergrande: China’s other biggest real estate developer could default

Lorenzo Bagnato

31 August 2023 - 12:37

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Country Garden is China’s largest real estate developer following Evergrande’s collapse. It too, however, is on the brink of default.

The new Evergrande: China's other biggest real estate developer could default

Following Evergrande’s collapse, another Chinese real estate developer faces financial hurdles and possible default. Developer Country Garden reported $6.7 billion in losses in the first half of the year.

Country Garden replaced Evergrande as China’s largest real estate developer in 2021, when the latter declared default. Since then, the Chinese government tried to control Evergrande’s collapse, but the company reported an $81 billion loss last month. Then, Evergrande filed for Chapter 15 bankruptcy in a United States court.

Evergrande’s liabilities almost match their assets at $328 billion. However, the company was forced to declare bankruptcy as it failed to turn such assets into cash to meet their obligations.

Chinese homeowners stopped trusting Evergrande in 2021 and were unwilling to buy new vacant houses, especially as the country was battling a deadly pandemic and harsh lockdowns.

A similar situation is now happening to Country Garden. The company has four times more projects underway than Evergrande, but it’s failing to regain trust in customers and investors. Country Garden’s liabilities currently sum up to $150 billion.

The shrinkage of the property sector,” Country Garden said in a statement, “coupled with the not yet restored confidence of the capital market, exerted mounting pressure on the company’s business operation.

Country Garden already failed to meet two deadlines, with another bond payment due in early September. Failing to meet this deadline could result in the company’s default, and the final nail in the Chinese housing market coffin.

China’s crisis

The housing market represents 30% of China’s GDP and 70% of Chinese household capital. Its collapse will send shockwaves across the entire economy, although it will not be a sudden bang like the Lehman Brothers crisis.

The housing crisis comes amid serious economic hardships for China. The country is battling persistent deflation and sluggish economic growth, paired with a steadfast decline in trading activity.

GDP growth has been much slower than expected, especially considering that Covid restrictions have been fully lifted in December 2022. China did not have the quick recovery most Western nations experienced.

Furthermore, the US trade war against Beijing is isolating China technologically. Chip manufacturing fails to be competitive, and China’s industrial output continues to decline.

Increasingly more analysts believe China’s economic miracle is over. After 40 years of staggering growth, experts say the Chinese economy will flatline similarly to Japan, once the world’s second richest country and now in a decade-long stagnation.

China’s decline will be slow, but the real estate crisis are clouds of bad weather to come.

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