China’s biggest private property developer, Country Garden, is facing possible default on its overseas debt, adding to concerns about the country’s post-pandemic recovery. The property market in China, which accounts for a third of the economy, has been struggling, with property sales and investment declining. The potential default by Country Garden could lead to one of the country’s biggest corporate debt restructurings and reignite concerns about the housing market. China’s real estate industry has been hit hard by new borrowing rules introduced in 2020, causing financial problems for several developers and leaving unfinished projects across the country. In addition to the property market challenges, China is also grappling with weak economic growth, increasing local government debt, and high youth unemployment.
China’s Property Giant Country Garden Faces Possible Default on Overseas Debt
China’s largest private property developer, Country Garden, is facing growing fears of default on its overseas debt, adding to concerns about the country’s post-pandemic recovery. The company has a staggering $11 billion in debt and an additional $6 billion in onshore loans. If Country Garden defaults, it would mark one of the largest corporate debt restructurings in China’s history.
The struggling property market in China is having a significant impact on the country’s economy, as the sector accounts for a third of its GDP. The latest figures show that China’s economy grew by 4.9% in the three months between July and September, which is slower than the 6.3% expansion in the second quarter.
In an attempt to boost housing demand, Beijing has announced various measures. However, property sales numbers are still down compared to last year, and property investment in the country has fallen by 9.1% for the first nine months of the year. In August, Country Garden reported a record loss of $6.7 billion for the first six months of the year, indicating the severity of its financial troubles.
If the default is confirmed, Country Garden’s offshore creditors will engage in negotiations with the firm’s financial advisors to initiate a restructuring process. Given the scale of the debt, this process could take several months to complete.
Raymond Cheng, the North Asia chief investment officer at Standard Chartered, expressed concerns about the housing market in China, stating, “This will reignite our concerns about the housing market in China.” He also suggested that markets may seek a more coordinated policy approach to restore confidence and trust in the market.
China’s real estate industry has already been shaken by new rules introduced in 2020 to control the borrowing capacity of large real estate firms. These financial problems have had a ripple effect throughout the industry, leading to several developers defaulting on their debts and leaving unfinished building projects across the country.
In addition to the challenges in the property market, China is facing other issues such as weak economic growth, ballooning local government debt, and record-high youth unemployment. These factors further compound the country’s economic struggles and pose additional risks to its recovery.
Overall, the potential default by Country Garden highlights the ongoing challenges in China’s property market and raises concerns about the country’s post-pandemic recovery. A coordinated policy approach may be necessary to restore confidence and stability in the market, while addressing the broader economic issues facing China.