China’s leading property developer, Country Garden Holdings, has issued a stark warning of a potential loss of up to $7.6 billion for the first half of this year, underscoring the mounting challenges faced by the world’s second-largest economy.
Deflation and Export Plunge Raise Concerns
The announcement comes amidst a series of economic setbacks, including deflation and plummeting exports, raising concerns about the pace of China’s post-pandemic recovery.
Official reports this week revealed that China has slipped into deflation for the first time in over two years, a worrying signal of economic instability. Adding to the country’s woes, exports have experienced a sharp decline of 14.5% in July compared to the previous year, and imports have dropped by 12.4%. These figures highlight the current fragility of China’s international trade relationships.
Country Garden’s Profits Dwindle Dramatically
Country Garden’s anticipated loss, ranging from approximately RMB 45 billion ($6.24 billion) to RMB 55 billion for the first half of 2023, presents a striking contrast to the $265 million profit recorded during the same period in the prior year. This staggering disparity underscores the challenges confronting the property sector, a cornerstone of China’s economy, which encompasses both residential and industrial components.
The company’s shares tumbled nearly 10% during Hong Kong trading on Friday morning, reflecting investor concerns over the grim financial forecast. The situation has prompted the establishment of a dedicated task force led by Country Garden’s chairman, Yang Huiyan, to explore strategies for revitalizing the company’s performance.
China Developer Country Garden Unit Said to Wire Funds to Repay Puttable Bond
Moody’s Downgrades Rating Amid Liquidity Concerns
Further compounding the issues, rating agency Moody’s downgraded Country Garden’s rating, citing heightened liquidity and refinancing risks. This downgrading exemplifies the growing apprehensions surrounding the financial stability of major players in the Chinese property market.
Youth Unemployment Looms Large
China’s surging youth unemployment, now at an all-time high, has also emerged as a critical focal point. With a staggering 11.58 million university graduates expected to enter the workforce this year, concerns about the country’s ability to absorb this influx of job seekers have escalated.
Addressing the challenging economic landscape, US President Joe Biden labeled China’s predicament a “ticking time bomb” during a recent fundraising event. He highlighted the nation’s mounting unemployment rates and an aging workforce as significant causes for concern.
Evergrande’s Crisis Reflects Sector Instability
China’s property market turbulence extends beyond Country Garden. Evergrande, once the country’s largest real estate firm, recently reported combined losses of $81.1 billion for 2021 and 2022. Struggling under an estimated debt load of $300 billion, Evergrande’s dire financial straits serve as a stark reminder of the fallout from China’s property market crisis.
