Country Garden fuels China property crisis: Major developer suffers record £5.3bn loss

A major Chinese property developer has posted a record loss amid a growing cash crisis in the country’s housing sector.

Country Garden, based in China’s Guangdong province, suffered a half-year loss of £5.3billion after a bleak six months that have seen its share price tumble amid mounting fears about its survival.

The figures came after the firm requested more time to repay some of its debts this week in a sign it was coming under ever greater financial strain.

Country Garden, whose chairman is Yang Huiyan, has debts of nearly £160billion and recently asked creditors for a 40-day grace period to repay a bond worth £425million, due on Monday. 

Mortgage bonanza: Guangzhou, China’s fifth largest city, announced that first-time buyers would be allowed loans regardless of their previous credit record

Some creditors are thought to be opposing the measure despite a growing risk of the firm defaulting on its loans.

Just a year ago it was China’s biggest real estate firm by sales and one of the few private companies that suppliers and lenders could depend on to pay the bills.

But confidence was shaken this month when Country Garden missed interest payments on two other bonds despite having previously been considered one of the developers least likely to default.

Faith in China is low after years of lockdowns and other Covid prevention measures have weighed on consumers, who are spending less. Companies are hiring fewer staff and as a result fewer people are buying homes.

Country Garden’s troubles hark back to a similar crisis at rival Evergrande, which in 2021 defaulted on its massive £236billion debt pile. This sent ripples across international markets amid worries its collapse could set off a chain reaction and a global financial crisis.

Last month, Evergrande finally reported long-delayed financial results for 2021 and 2022, revealing that over the two-year period it had lost £64billion.

Its shares fell 10 per cent yesterday after resuming trading on Tuesday – for the first time in nearly 18 months.

Troubles: Country Garden chairman Yang Huiyan

The stock has lost nearly 99 per cent of its value over the last three years and it has filed for bankruptcy protection in the US to protect its American assets.

With Country Garden having four times as many housing projects as Evergrande, there are fears its fall could cause an even bigger crisis.

‘Investors, as well as the ruling Communist Party and the People’s Bank of China, must now assess whether a sudden collapse is coming, or whether the real estate market will endure a lengthy period of subdued growth as speculative excesses are shaken out,’ said AJ Bell’s investment director Russ Mould.

The warning signs have spurred officials into action, with state-owned banks poised to cut interest rates on existing mortgages and deposits for the first time in around 15 years to relieve pressure on property sector profit margins and revive demand.

Guangzhou, China’s fifth largest city, has also announced that first-time buyers would be allowed loans regardless of their previous credit record.

The moves have helped bolster market sentiment, with Hong Kong’s Hang Seng Mainland Properties Index closing up around 0.5 per cent yesterday. 

But some are worried stimulus measures will not revive the spluttering economy.

Official figures showed China had slipped into deflation with consumer prices falling 0.3 per cent year-on-year last month.

The country has also stopped publishing data on youth unemployment after the rate of joblessness hit a record 21.3 per cent in June.

At the weekend figures showed profits from China’s industrial sector slumped by 6.7 per cent in July.