NR’s editorial this morning was on China’s economic woes. Right on cue, China Evergrande Group, formerly China’s largest property developer, filed for bankruptcy today.
The company defaulted on its debts in 2021, and its prospects haven’t improved much since then. After not releasing financial results for two years, last month it announced an $81 billion loss. The filing also said its debts totaled $340 billion, equal to about 2 percent of China’s GDP, against $256 billion in assets. Its shares have been suspended from trading since March of last year. Creditors seized one of Evergrande’s largest assets, a $1.6 billion tower in Hong Kong, last year. They still haven’t found a buyer, and market prices suggest that when they do, they could take a loss of $1 billion.
China’s current largest property developer, Country Garden, is also in big trouble right now. As I wrote in the Morning Jolt on Monday:
Its bonds are currently trading at less than 10 percent of their face value, and the company said this morning it is trying to extend the maturity date on a $537 million payment due on September 2. Bloomberg reports that Country Garden “had 1.4 trillion yuan of total liabilities at the end of last year. To put that figure in perspective, it exceeds the annual economic output of a long list of countries including Kuwait.” The firm has four times as many projects as China Evergrande Group, which is itself a massive property developer and defaulted on its debts at the end of 2021.
Country Garden’s sales were down 34 percent year-over-year in July, and the company missed a major bond payment this month. “Even if Country Garden makes the late payment, it would only be delaying what appears to be inevitable,” reports the Financial Times. According to Morgan Stanley analysis, the company is burning 3–4 billion yuan in cash each month just to stay afloat. Its exposure is worse than that of other property developers because many of its projects are in third-tier cities, some of which are sitting largely empty as a result of central-planning errors.
China’s real-estate sector played an oversized role in the country’s overall economy. Its ongoing collapse is doing major damage.