Country Garden: Chinese property developer faces collapse amid record $11 billion first-half loss

Country Garden was previously named by Forbes as one of the 500 largest companies in the world and until recently, boss Yang Huiyan was one of the richest women in Asia.

However, the firm has been in turmoil for months after being caught in a so-called “debt spiral” and becoming one of the latest victims of China’s notorious property slump, which kicked off after Beijing cracked down on borrowing by developers early in the pandemic.

Earlier this month it emerged that Country Gardens was unable to make two bond payments, and that it risked defaulting in September if it still cannot pay up.

The news sent the company’s share price plummeting, and there are growing fears the company could even go bust altogether.

In a filing on Wednesday, Country Garden admitted its financial woes “may result in default”, citing “material uncertainties” which could cast “significant doubt on the group’s ability to continue as a going concern”.

“If the financial performance of the group continues to deteriorate in the future, the group might not be able to fulfil the financial covenants of these borrowings, which may result in default in these borrowings and cross-default in certain other borrowings,” the filing states.

“The group’s liquidity is under unprecedented pressure with a dual tightening of sales and financing. The profundity and persistence of the market’s downtrend still caught the company off guard.

“The company feels deeply remorseful for the unsatisfactory performance.”

Country Garden recorded a record net loss between January and June of 48.9 billion yuan ($A11 billion), hot on the heels of a 6.7 billion yuan net loss in the second half of 2022.

To put the crisis into perspective, Country Gardens’ situation is considered to be even more dire than that of Evergrande, as it has four times as many real estate projects to its name.

As a result, there are renewed fears of contagion from China’s property wipe-out, with experts increasingly concerned the mayhem could lead to widespread economic contagion, given the real estate industry contributes up to 30 per cent of China’s GDP.

Speaking to DW, Alicia Garcia-Herrero, chief economist for investment bank Natixis, said the crisis engulfing Country Garden, Evergrande and other major Chinese real estate firms revealed major systemic problems in the nation’s economy.

“When the China Evergrande crisis unfolded, people feared that others would follow, but certainly not Country Garden. It was much less leveraged than Evergrande,” she said.

“Without a continual increase in (housing) prices, the whole real estate model is unsustainable and even a company like Country Garden can’t make it.”

China’s drastic move

It comes as China began rolling out panicked measures in a desperate bid to boost confidence as the world’s second-largest economy grapples with a drastic downturn that insiders fear could have global ramifications.

In one of the biggest moves, Beijing slashed a tax on trading for the first time in 15 years on Monday.

According to a statement released by the Ministry of Finance and the State Administration of Taxation, the halving of the stamp duty on securities transactions was designed to “activate the capital market and boost investor confidence”.

It came amid a brutal sell-off from nervous foreign investors, who have offloaded a staggering $A17 billion of Chinese shares in just three weeks as the nation’s economy lurches from crisis to crisis.

Other rules were also rolled out, including placing restrictions on major shareholders of listed companies and slowing the pace of initial public offerings (IPOs).

But it proved to be little more than a sugar hit, with gains disappearing within a few hours of the announcement being made on Monday after a brief spike.

In a clear sign of how dire China’s economic outlook has become, the last time the tax was decreased was in April 2008 as a direct response to the Global Financial Crisis.