In the aftermath of the bankruptcy of the Evergrande Group, China real estate sector accumulated a debt of $5.2 trillion.
The WSJ reported on 11 that the largest real estate boom in China’s history had entered its final phase. A study from the Japanese financial company Nomura Holdings, showing debts of more than $5 trillion accumulated during this period.
In June, the debt of Chinese developers reached $5.2 trillion, more than doubling from the end of 2016. This is more than the total economic output of Japan, the world’s third-largest economy.
Evergrande Group, the most indebted property developer in the world, started it all. Including bonds, its debts amount to 1.96 trillion yuan (approximately $300 billion). Furthermore, Fantasia Holdings Group has not repaid the $206 million bond that matured on the 4th of this month. Similarly, Fantasia’s subsidiary, wealth management company Country Garden Service Holdings, failed to repay a 700 million yuan loan that matured on the same day.
Data from CRIC shows that the 100 largest developers in China reported a 36% decline in sales in September from a year earlier. Evergrande, Country Garden Holdings Co., and China Vanke Co. saw their sales drop 44 percent from a year ago.
Modern Land, another Chinese real estate company, requested a repayment deferment on a $250 million bond due last month.
Real estate, a pillar of Chinese economy
The Chinese economy is heavily dependent on real estate and construction. Professor Kenneth Rogoff of Harvard University in the United States and professor Yuanchen Yang of Tsinghua University in China estimated in their 2020 paper that the real estate and construction sectors accounted for 29 percent of the Chinese economy. The figure is much higher than in many other countries. Moody’s Analytics, a database of financial institutions, shows that real estate loans accounted for 27 percent of China’s total bank lending in June, or $28.8 trillion.
Oxford Economics, a British market research firm, lowered its forecast for China’s gross domestic product growth for the third quarter from 5 percent on the 6th to 3.6 percent. China’s growth rate for 2022 was also lowered from 5.8 percent to 5.4 percent.