2023-08-16 12:21:00
The real estate sector in China is in very bad shape. One of the largest groups in the Middle Kingdom, Country Garden, whose astronomical indebtedness worries the markets, warned in a statement sent to the Shanghai Stock Exchange that ” considerable uncertainties “weighed on his reimbursements, this Wednesday, August 16.
Country Garden is a private giant in its country. It is present mainly in secondary towns and employs several tens of thousands of employees. The group is listed in the Forbes list of the 500 largest companies in the world and its boss, Yang Huiyan, was until recently the richest woman in Asia.
The group, which has long been deemed financially sound, however, proved unable last Monday to repay two interest on loans. The group now has a 30-day grace period and risks defaulting in September if it does not pay.
Catastrophic repercussions
Against all expectations, the company also announced during the weekend to suspend the quotations of a dozen bonds since Monday. This decision is causing nervousness in the markets. In fact, the group estimated its debt at some 1.152 billion yuan (150 billion euros) at the end of 2022. The Bloomberg agency put it at around 1.400 billion yuan (176 billion euros). Logically in the face of this unfavorable context, the Country Garden share sold Monday at the close of 18.3% on the Hong Kong Stock Exchange, where the group is listed. The title has lost 42% of its value in the space of a month.
The Country Garden boss admitted in a letter of apology on Friday that her company was facing a difficult economic situation. the greatest difficulties ” since its creation. Yang Huiyan, who became a billionaire at the age of 25 by inheriting the shares of the group founded by her father, however reassured regarding the combativeness of Country Garden to get by and survive.
Like Evergrande, its competitor in debt to the tune of more than 300 billion euros, any collapse of Country Garden would have catastrophic repercussions on the Chinese financial system and economy. The group, which is due to publish its half-year results later this month, says it expects a net loss of around 45 to 55 billion yuan (between 5.6 and 7 billion euros).
Dried up funding sources
To add to the pressure, 31 billion yuan (3.9 billion euros) of bonds will mature in 2024, according to the rating agency Moody’s, which on Thursday lowered the group’s solidity rating to ” Caa2 “, synonym of ” very high credit risk “. The housing reform in China, which created a genuine real estate market at the end of the 1990s, led to a meteoric boom in the sector, maintained by social norms, the acquisition of property often being a prerequisite for marriage.
But the massive indebtedness of promoters has been perceived in recent years by the government as a major risk for the country’s economy and financial system. To reduce the sector’s indebtedness, Beijing gradually tightened the conditions for access to credit for developers from 2020, which dried up the sources of financing for groups already in debt.
A wave of defaults followed, notably that of the Evergrande group, which undermined the confidence of potential buyers and reverberated throughout the sector, once morest the backdrop of an economic slowdown in China.
Beijing recognizes difficulties
Beijing recognized this Wednesday of “ difficulties economic, but he castigated the pessimism of those in the West who doubt the Asian giant’s ability to sustain global growth. ” China’s economic recovery (post-Covid) will have to ride the waves and experience a tortuous progress, with inevitable difficulties and problems said Wang Wenbin, a spokesman for China’s Foreign Ministry, on Wednesday.
« But we have never backed down from problems, we have taken proactive steps to address them, and results have been or are being seen. “, he underlined during a regular press briefing.
Asked regarding Western critics deeming the Chinese economic slowdown incompatible with its role as engine for the world economy, the spokesman denounced their pessimism. ” A small number of Western politicians and media exaggerate and exaggerate the periodic difficulties of China’s post-epidemic economic recovery. In the end, the facts will prove them wrong “,” Wang Wenbin said.
Growth maintained at 5%
However, several lights are orange. Retail sales, a key indicator of consumption, rose 2.5% year on year in July, the National Bureau of Statistics (BNS) announced on Tuesday. A level much lower than in April (+18.4%) and below analysts’ expectations. Unemployment among 16-24 year olds is also at record levels, at more than 20% according to official figures.
Another sign that the recovery is running out of steam, loans to households reached their lowest level since 2009 last month. Industrial production also slowed in July (+3.7% over one year), following 4.4 % a month earlier. The government, for its part, is still betting on its growth objective. regarding 5% for 2023. From the first to the second quarter of 2023, China’s GDP grew by just 0.8%.
Spokesman Wang Wenbin, however, preferred to point out on Wednesday that the Chinese economy grew by 5.5% over the first half of the year. He also welcomed the increase in investment in scientific research and the extension of Chinese photovoltaic capacities. According to the International Monetary Fund (IMF), he said, China’s economy is expected to grow 5.2 percent this year, contributing one-third to global economic growth.
The financial group Zhongrong, exposed to real estate, unable to honor payments on its investment products
A major Chinese trust company has failed to make coupon and principal payments on dozens of investment products since late last month, a senior official with the group told investors. This announcement reinforces fears of contagion from the real estate crisis to the financial sector.
Zhongrong International Trust has short-term liquidity problems, Wang Qiang, the company’s chief compliance officer, told investors, quoted by a source familiar with the matter. The group therefore has no intention of meeting its repayment obligations for dozens of products that have expired, Wang Qiang told dozens of investors at the company’s Beijing headquarters on Monday, the source said. was present at the meeting.
Zhongrong did not immediately respond to a request for comment from Archyde.com. Wang Qiang, who is also board secretary and legal counsel, might not immediately be reached. The meeting of Zhongrong with some investors comes following two publicly traded companies said over the weekend that they had not received payment for maturing investment products from the trust company, which had traditionally a significant exposure to real estate.
Missed payments of Zhongrong have heightened concerns over China’s shadow banking sector’s outsized real estate exposure, worth $3 trillion, at a time when the faltering economy is already reeling from a deepening real estate crisis.
(with agencies)
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