There is no indication Country Garden’s problems might spread beyond
The
Financial markets were rattled when
A government spokesperson tried to reassure the public and financial markets, saying conditions are improving and regulators are getting debt under control.
“The risks of housing enterprises are expected to be gradually resolved,” said Fu Linghui of the
Policy changes “will help boost market confidence,” Fu said at a news conference. “Housing consumption and housing enterprises’ willingness to invest are expected to gradually improve.”
On Thursday, a half-dozen homebuyers sat outside a
The homebuyers, who sat under tent in 31 C (89 F) heat, declined to talk to a reporter but a security guard said their complaint stemmed from a
Abroad, the impact “seems likely to be limited,” said
Foreign investors pulled out of Chinese real estate after earlier defaults and “policymakers should step in to prevent a meltdown in China,” McKeown said.
Real estate propelled China’s economic boom, but developers borrowed heavily as they turned cities into forests of apartment and office towers. That helped to push total corporate, government and household debt to the equivalent of more than 300% of annual economic output, unusually high for a middle-income country.
After years of warnings that led to global rating agencies cutting the Chinese government’s credit rating in 2017, the ruling party cracked down on real estate debt in 2020. It imposed controls known as “three red lines” that prohibit heavily indebted developers from borrowing more to pay off bonds and bank loans as they matured.
A weak real estate industry complicates efforts by Chinese leader Xi Jinping’s government to reverse a deepening economic slump after a rebound following the end of anti-virus controls fizzled out sooner than expected.
The economy grew by a robust 2.2% over the previous quarter in the January-March period. But that fell to just 0.8% in the three months ending in June. That is equal to a 3.2% annual rate, which would be among China’s weakest in decades.
Revving up real estate spending was the ruling party’s solution for previous downturns. Xi’s government has eased restrictions on borrowing by developers and told banks to lend to homebuyers. But it appears to be trying to stick to its overall debt-reduction goal.
Real estate accounts for some 20% of China’s economy. When spending on steel and copper for construction, furniture and other related purchases is added in, estimates of its share of the economy rises as high as 35%.
Real estate's troubles are causing a vicious cycle by prompting jittery households to put off housing, auto and other big purchases, which in turn depresses economic activity further. Auto sales shrank 2.6% in July from last year's already depressed level under anti-virus curbs.
Country Garden’s debt struggle might “drive potential homebuyers away from privately owned developers,” Moody’s Investors Service said in a report. That would “weaken effects of any potential supportive measures by the government to stabilize property sales.”
The industry also might be squeezed as investors and banks shy away from lending to smaller developers, Moody’s said.
In a sign of weak demand, prices paid for new homes fell for a second month in July, according to the statistics bureau. Prices in 35 smaller cities declined 0.3% from June. Prices in 31 bigger cities edged down 0.2%.
Sales of land use rights are down, adding to the strain on local governments that are trying to manage debt burdens that swelled with the expense of fighting the COVID-19 pandemic.
Yang Huiyan’s fortune rose to
Country Garden’s possible losses are a sliver of those of
But both ran into the same problem: They have more assets than debt but can’t turn slow-selling real estate into cash fast enough to repay lenders.
The developer had only
“The company has encountered the biggest difficulties since its establishment,” its president,
The company also owes
Local authorities took control of stalled Evergrande building projects to make sure buyers got apartments that already were paid for.
Authorities have yet to say whether the company is a big enough risk for regulators to get involved in its restructuring or take over building projects.
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