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Country Garden, one of China's largest real estate developers, has been in bad shape for months. It is now failing to pay off its bondholders and risks going belly up.

The real estate sector has long been the engine (accounting for 30 percent of growth) behind China's economy. Since the government introduced stricter rules for real estate developers to borrow money, the entire sector has been experiencing problems.

In the news: Country Garden misses coupon payment on bond.

Country Garden is dragging an $11 billion debt backpack. Normally, the company was supposed to transfer a $15 million coupon payment to its bondholders by today at the latest, but they got nothing yet.

  • Investors may have already seen the pinch. The coupon was actually due in September, but Country Garden was given a 30-day extension.
  • Foreign holders of the bond are now uniting, hoping to salvage another debt restructuring.
  • Country Garden bonds are now trading at a fraction of the price. According to Duration Finance, a bondholder could still count on a price between 4.4 and 5.3 cents for every dollar sold from the bond.
  • Ongoing Country Garden projects in Australia are now up for sale. This while there is just a great need for additional housing there, reports Reuters.

How did it come to this?

  • During the corona crisis, the Chinese government decided to tighten excessive lending to real estate developers, out of concern for financial stability. As a result, Evergrande went overboard.
  • A lot of developers ran into liquidity problems and the number of new projects plummeted. A brake on new housing construction was therefore necessary to bring supply back to demand levels.
  • Additional housing capacity, measured per square meter, declined year after year since 2020. Official data indicate annual reductions of 2 percent in 2020, 11 percent in 2021 and last year housing capacity fell 39 percent.

The policy difference between China and the West becomes all the more apparent in crises. Whereas the U.S. Federal Reserve and the European Central Bank meticulously adjust their policies, China goes straight to the point. In doing so, it has much less regard for collateral damage to modal citizens or businesses.(cv)

© The Content Exchange, source News