Cracks in China’s debt-ridden economy
By Paul Lin 林保華
Taipei Times 2023.8.21
On Aug. 3, CK Asset Holdings Ltd, the property flagship of Hong Kong’s richest man, Li Ka-shing (李嘉誠), launched presales at 15 percent less than the market price for uncompleted condominiums in the Yau Tong area that were part of its project dubbed the Coast Line II. It caused a shock in the market and people wanted to know what was happening.
At that time, rumors spread that some Chinese real-estate companies might go bankrupt, but the Chinese government downplayed this as a sales tactic. It turned out that Country Garden Holdings Co, another giant Chinese real-estate developer, was in trouble. This shows how sharp Li’s business sense is.
The total number of construction projects under Country Garden, dubbed the universe’s largest privately run real-estate company, is about four times more than that of Evergrande Real Estate, which is also in trouble.
However, with Country Garden’s construction projects mostly in third and fourth-tier Chinese cities, the problem is even worse. Although it gained a great amount of profit last year, it made a huge loss in the first half of this year. Country Garden recently failed to pay the interest on its maturing bonds, so its bond trading has been suspended. Meanwhile, its share price in Hong Kong has dropped more than 70 percent to a penny stock.
The Chinese real-estate industry has a work population of more than 60 million. If we include the up, mid and downstream industrial chains closely related to the real-estate industry — such as the manufacturing, construction, financial and service sectors — they account for one quarter of China’s GDP. The Chinese government cannot ignore Country Garden’s bankruptcy, so it stated that the debts can be extended for up to 25 years, with no need to pay the interest. This is applicable to its debts to national banks, along with the company’s other debts.
Related to the real-estate industry, Zhongrong International Trust, an affiliate of Zhongzhi Enterprise Group, the largest Chinese asset management company, not long ago announced delayed payment of wealth products. Furthermore, three listed companies said that they have been hit by the delay. This series of events is just like the Lehman Brothers’ US case, which snowballed into a financial crisis in 2008.
The Chinese Communist Party (CCP) was holding the annual Beidaihe (北戴河) meeting to discuss economic and military reform, but torrential rain interrupted it, followed by the financial storms in the real-estate and financial industries. Now the economy has become the main issue. On Aug. 13, the Chinese State Council issued a 24-point guideline: Opinions on Further Optimizing the Foreign Investment Environment and Increasing Efforts to Attract Foreign Investment. The announcement released on Sunday last week — which should have been a day of rest — showed that the authorities were filled with anxiety.
Taiwan adheres to its ways. The Taiwanese financial industry’s connections with China are at an all-time low and the impact on the sector is less than NT$2 billion (US$62.61 million). As China keeps lowering its interest rates, the exchange rate of the Chinese yuan has fallen repeatedly and this would inevitably drag the New Taiwan dollar down while affecting the local stock market.
The sluggish Chinese economy is likely to hurt the nation’s exports to China, but all of these problems would adjust when the new cross-strait relations take shape.
Paul Lin is a political commentator.
Translated by Eddy Chang