HONG KONG/BEIJING, Aug 14 (Reuters) – China’s largest private real estate developer Country Garden (2007.HK) is seeking to delay payment on a private onshore bond for the first time, the latest sign of a stifling cash crunch in the property sector, piling pressure on Beijing to step in.
Adding to worries about contagion risk, a major Chinese trust company that traditionally had sizable exposure to real estate, Zhongrong International Trust Co, has missed its repayment obligations on some investment products.
Analysts warned that a rise in default by trust companies, also known as shadow banks, which have strong ties to the domestic property sector, will further weigh on the world’s second-largest economy.
Anxiety about contagion risks is spreading through global markets, putting China’s government under mounting pressure to deliver support for the ailing real estate sector, which accounts for roughly a quarter of the economy.
Once considered a more financially sound developer, Country Garden’s woes could also have a chilling effect on homebuyers and financial firms, with more private developers close to a tipping point if Beijing’s support does not materialise soon.
The real estate sector has suffered tumbling sales, tight liquidity and a series of developer defaults since late 2021, with China Evergrande Group (3333.HK) at the centre of the debt crisis.
Weak overseas demand, tepid domestic consumption and persistent problems in the property sector have been major factors in China’s struggles to mount a solid post-COVID recovery.
In a move that dealt a fresh blow to investors’ sentiment, two Chinese listed companies said over the weekend that they had not received payment on maturing investment products from Zhongrong International Trust Co.
Trust firms, or shadow banks, operate outside many of the rules that govern banks, channelling the proceeds of wealth products sold by banks to developers and other sectors that are unable to tap bank funding directly.
Concerns about the outsized exposure of China’s shadow banks – a $3 trillion industry, roughly the size of Britain’s economy – to property developers have grown over the past year as the sector lurched from one crisis to another.
JPMorgan in a research note on Monday said that rising trust defaults would drag down China’s economic growth by 0.3-0.4 percentage points directly, and that it expects a “vicious cycle” of real estate financing challenges.
“In addition to the apparent financial risks and their transmissions, the latest wave of defaults from wealth management firms on trust-related products is likely to cause some substantial ripple effects for the broader economy through wealth effects,” Nomura said in a separate note.
Reuters Graphics’CRITICAL MOMENT’
A source with direct knowledge said on Monday that Country Garden has proposed to creditors to extend repayment for an onshore private bond due Sept. 2 , with an outstanding of 3.9 billion yuan, by three years in seven instalments.Country Garden…
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