World economy on the brink as Chinese firm worth £189bn is close to collapse

One of China’s biggest property developers is “on the verge of collapse”, raising the spectre of global financial “contagion”, a US-based economist has warned.

And a UK based economist has said as a “key player” there remained concern about Beijing’s problems “dragging down the rest of the world”.

The Country Garden Real Estate Group today confirmed it was suspending trading in almost a dozen bonds, two days after controlling shareholder Yang Huiyan, one of the country’s richest people, warned she would be reporting multibillion-dollar loss for the first six months of the year.

China’s sixth-largest developer said in a Hong Kong exchange filing last Thursday night that it was envisaging a net loss of between 45billion and 55billion yuan (£4.88billion to £6billion), compared with earnings of £210million in the first half of 2022, according to the South China Morning Post.

Posting on X (formerly Twitter), Ivan Bayoukhi, founder and owner of the precious metal-focused investment forum Wall Street Silver, said: “China’s second-largest developer Country Garden with annual revenues of more than $70billion, is on the verge of collapse.

“The company’s eight percent bonds due in 2024 are trading at a paltry eight cents, signalling massive losses for the bondholders.

“The yield is skyrocketing, meaning nobody expects it to be paid.

“China’s property meltdown continues.”

According to Statista’s most recent figures, County Garden had assets totalling £189billion as of 2023.

The company’s shaky finances have triggered concern about financial contagion, which result when a negative event in one market place or economy spreads to other, sometime unconnected, world economies, regionally, nationally or globally.

Julian Jessop, Economics Fellow at the Institute for Economic Affairs (IEA) told ”China is now a key player in the global economy, so the worry is that any problems there will drag down the rest of the world.

“After all, the global financial crisis of 2008 was triggered by a slump in the US housing market.

“The immediate contagion from the problems at Country Garden should be limited.

”China’s property market is dominated by local companies and the authorities have the tools to manage the fallout (for example, forcing state banks to keep lending).

“But prolonged weakness in this sector will be a major drag on Chinese growth for many years.

He continued: “A big part of the problem with contagion is uncertainty and this is often greater in China, given the lack of reliable information.

“There are a number of ways in which a crisis there could affect us, including weakening Chinese demand for UK exports, Chinese companies dumping goods on Western markets, or Chinese investors taking money out of the UK to prop up operations at home.

“With China you never quite know!”

Six yuan-denominated corporate bonds which were issued last year and in 2021 were suspended from trading as of this morning, according to filings to Shenzhen Stock Exchange on Saturday night.

In a statement also issued on Saturday, Country Garden said it was planning to stage meetings with bondholders on arrangements for repayment in the near future.

It would take measures to defuse risks and protect the legitimate rights of investors while ensuring home deliveries, it stressed.

Country Garden’s shares plunged by 14 percent on Friday in Hong Kong, and have tumbled 63 percent this year, the worst performer on the Hang Seng Index.