Country Garden: further stress in China’s property market

CHINA ADVISORY - Report 14 Aug 2023 by Andrew Collier

Country Garden, China’s second-largest property developer, has exhibited several signs of stress. It failed to inject additional funds into its developments and did not make payments on two bonds. Country Garden's June contracted sales at 17 billion yuan, according to CRIC's preliminary estimates, was significantly below the 28-30 billion yuan per month that it needs to generate sufficient cash to ensure the completion of pre-sold projects, according to its own stress test in mid-2022. China’s property market is continuing in free-fall, with official prices flat, but unofficially, reports suggest declines of anywhere from 25 to 50 percent. Bloomberg reported that the securities regulator held a meeting with developers on Friday, August 11. However, Country Garden was not invited, and the China Securities Regulatory Commission is not in the business of providing credit through loans or government bond sales.

The problem is obviously broader than just Country Garden. China’s property problem is demand led. Households no longer believe property is a reliable investment. Meanwhile, they are struggling to keep their jobs and maintain household wealth when they see the economy on a downward trajectory. The downturn in property is also affecting other industries, such as steel.

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