Fears of a domino effect on the Chinese economy are growing as the liquidity crisis in the country’s real estate sector intensifies, as reported by Reuters.
China’s largest private real estate company Country Garden is seeking to delay a private bond payment for the first time, the latest sign of a suffocating liquidity crisis in the real estate sector, increasing pressure on Beijing.
“Shadow banks”
Adding to concerns about contagion risk, a large Chinese trust company that has traditionally had significant exposure to real estate, Zhongrong International Trust Co, has defaulted on repayment obligations for some investment products.
Analysts warn that rising defaults by trust companies, also known as shadow banks, which have strong ties to the domestic real estate sector, will further weigh on the world’s second-largest economy.
Risks of transmission
Concern about contagion risks is spreading to global markets, putting China’s government under increasing pressure to provide support to its struggling property sector, which accounts for about a quarter of the domestic economy.
The troubles of Country Garden, once considered a financially sound developer, could have a knock-on effect on homebuyers and financial firms, with more private developers nearing tipping point if Beijing’s support does not materialize soon.
Real estate sector
The property sector has been hit by falling sales, tight liquidity and a series of developer defaults since late 2021, with China Evergrande Group at the center of the debt crisis.
Weak overseas demand, tepid domestic consumption and persistent problems in the real estate sector have been major negative factors that have prevented China’s economic recovery from the pandemic.
Source: hellas.postsen.com
