China’s Property Giant Country Garden Suffers Hefty Losses as Property Bubble Bursts
News Analysis
Chinese property giant Country Garden’s losses are growing exponentially as the country’s property bubble bursts.
“The company’s record losses in 2023, driven by impairment provisions and declining asset values, illustrate the broader liquidity pressures and cautious lending environment gripping the industry,” Michael Ashley Schulman, chartered financial analyst, told The Epoch Times.
For years, land development served as a quick source of growth for China’s feverish economic growth, often making up for setbacks in its other two sources of growth: exports and consumer spending.
On the surface, that sounds like a good strategy, something a country with a population of 1.4 billion needed to emerge from the poverty of the Maoist years and become a developed economy.
On closer examination, however, it was another venture in destroying the country’s precious resources, as the planning of construction structures didn’t begin with consumer needs and incomes. Still, bureaucrats and Party bosses need to show the world that communism can deliver quick growth, enriching themselves in the process.
In many cases, apartments weren’t built to house families but as speculative assets owned by modern-day landlords who saw no need to rent or sell them when a property bubble blew. Likewise, giant shopping malls were built to stimulate local growth without carefully considering their need.
That’s how China’s property bubbles blow. It happened in the 1990s and again in the aftermath of the financial crisis of 2008–09, helping the world’s second-largest economy sustain high economic growth. County Garden was the poster child of the recent bubble episode.
However, bubbles cannot expand forever; they eventually burst, causing financial losses to property developers and institutions. The burst of the property bubble of the 1990s, for instance, ended with the shut-down of City International Trading Corporation, the Guangdong International Trust Corporation on Feb. 17, 1999, and the Hainan Development Bank on June 21, 1998.
While it is still too early to determine how the current bubble’s burst will end, one thing is clear: Beijing has a big problem ahead to save property developers and financial instructions this time around.
Meanwhile, Schulman is skeptical of Country Garden’s restructuring plan.
“The proposed debt restructuring plan, aimed at reducing liabilities by $11.6 billion and extending maturities by up to 11.5 years, marks a crucial step toward stabilizing Country Garden’s balance sheet,” he said. “However, further defaults are possible. Persistently weak home sales and a lack of new housing starts reflect the need for broader policy measures to restore consumer confidence and ensure project completions.”