‘Contagion is Already Spreading’: What China’s Real Estate Company Problems Mean.
According to Reuters, two of China’s largest real estate companies, Greenland Holdings and E-house, have had their credit ratings reduced by S&P Global, a credit rating agency.
This follows the Evergrande Group, the country’s second-largest property developer and one of the world’s most indebted corporations, missing its third round of interest payments.
Some experts predict that Evergrande will go bankrupt shortly, and that two more companies, Fantasia and Modern Land, will follow suit. The former’s credit rating was recently downgraded to default or near default, while the latter has requested an extension due to its inability to pay its bills.
With some analysts estimating that the property sector accounts for as much as 28% of China’s GDP, the industry is more important in China than it is in many other regions of the world.
Given the sector’s importance, Logan Wright, director of Rhodium Group’s China markets research and an adjunct fellow at the Center for Strategic and International Studies, warned that the problem could be difficult for Beijing to address, implying that the issue could spill outside its regulatory jurisdiction.
“As more developers face finance challenges, the contagion is already spreading throughout China’s financial markets,” Wright told The Washington Newsday. “It’s one thing to declare the problem can be controlled; it’s quite another to actually do it. Waiting too long to respond to market upheaval can become a policy blunder at some point.” The stakes for Beijing, according to Wright, are quite high. President Xi Jinping recently took steps to limit the impact of western-style capitalism in China, instructing local governments to brace for the consequences of an Evergrande collapse. However, as Beijing’s stance has grown more evident, the sector’s troubles have only become worse.
He told The Washington Newsday that “credit stress has been developing throughout China’s financial sector for some time.” “However, the recent spotlight on the property sector’s troubles has intensified that pressure by lowering property sales nationwide, presumably adding to other developers’ financial hardship and contributing to defaults.” While in the past, Beijing imposed limits on the number of formal lending developers who worked behind the rules, this is no longer the case. This is a condensed version of the information.