China’s economy is reeling. As the risk of collapse of the real estate market, which accounts for 25% of China’s gross domestic product (GDP), increases, there is a growing sense of crisis that it could push the Chinese economy, which is in a deflationary state.
According to the Hong Kong Myungbo, China’s leading real estate trust, Zhonglong International Trust, postponed the payment of cash for expired products to three companies, Jinbo Holdings, Nandu Water Industry, and Xianheng International, which are listed on the Shanghai Stock Exchange in China on the 14th. Another major real estate developer, Yuanyang Group, was also suspended from trading after failing to repay $20.94 million in a 6% note due in 2024.
The default crisis that started in the real estate development industry is spreading in all directions, including the financial sector, as the Evergrande Group’s bankruptcy has not been resolved for two years and another large real estate developer, Country Garden, is also facing a liquidity crisis.
In particular, 11 types of Country Garden bonds, whose defaults have been on the countdown, have been suspended from the same day. They include nine corporate bonds, including six yuan-denominated corporate bonds issued between 2021 and 2022, one private equity bond, and one corporate bond from Guangdong Tengwe Construction Corporation, a non-guiyuan affiliate. The total amount of these bonds amounts to 15.72 billion yuan. Country Garden previously lost up to $7.6 billion in the first half of this year after failing to pay $22.5 million in interest on two $1 billion worth of bonds that expired on the 7th.
In this situation, there are even warnings that the Chinese economy could fall into a Japanese-style long-term recession if consumption, exports, and investment, called the three major engines of the Chinese economy, are all sluggish and financial insolvency from real estate is added. The Financial Times (FT) also raised the possibility of China falling into a “Japanese-style recession,” saying, “The Chinese economic situation this year is similar to Japan after the real estate bubble burst in the 1980s.”
