China’s economic woes deepen as major firms report liquidity crises

All eyes are on the Chinese economy as two major real estate and financial firms report sluggish performances.

Country Garden, one of the country’s top property developers, announced that it would suspend trading 11 of its onshore bonds on Monday, causing shares to plummet to a record low. Meanwhile, three companies over the weekend reported that Zhongzhi Group, a secretive conglomerate, failed to make payments on multiple high-yield investment products.

We’ve gathered reporting and analysis on what is driving economic uncertainty in real estate and finance, and what the future holds for Chinese markets.

• Potential home buyers are waiting for prices to fall and better deals to come their way, triggering the property market’s deep slump and hampering efforts to revive the economy. Chinese citizens had been accustomed to subsidies from local governments, price cuts from developers, and cheaper mortgages from banks. This is worsening the liquidity situation for developers like Country Garden after apartment sales fell for four consecutive months. — The Wall Street Journal
• The Zhongzhi Group’s “robbing Peter to pay Paul” model has become “unsustainable” and its wealth management deals “look suspiciously like a Ponzi scheme,” writes Wang Jie, a Caixin columnist with experience in financing Chinese real estate companies. Conglomerates like Zhongzhi were set up pre-COVID in a business environment where there was enough market diversity and confidence to create a “self-financing” system that could guarantee new investment projects to reassure the market during previous liquidity crises. But with the death of Zhongzhi’s founder in 2021 and China’s slow economic growth post-COVID, investment opportunities are increasingly scarce, and even sunrise industries like green energy and electric vehicle production are too competitive at the moment to guarantee high returns.
• Zhongzhi’s woes are fueling the risk of “contagion,” where problems in one area of the finance industry can cascade into a “broader crisis of confidence.” Authorities can better contain financial distress in real estate, but troubles at trust and wealth management firms can become more catastrophic, since they have the ability to impact both corporations and “mom and pop” investors. — Bloomberg