The Staggering Losses of the Chinese Property Crisis Emerge

After a long delay, embattled Chinese property developer Country Garden published full year figures for 2023 last week. The results are as bad as expected - a loss of $27.5 billion annually is the second biggest China's listed companies have ever seen. This is of course behind the spectacular 2021 loss of Evergrande, the Shenzhen-based developer that has become the poster child of the Chinese property sector meltdown. Evergrande lost almost $94 billion that year (of which $66 billion was attributable to shareholders) and reported losses for 2022 and the first half of 2023 put at just $17.2 billion and $5.4 billion, respectively. Like Evergrande, Country Garden has said that they expect smaller losses in its next report and put interim net profits at just -$2 billion for H1 2024. 

Nevertheless, the damage done by the Chinese property developers meltdown is massive. Evergrande filed for U.S. bankruptcy in August of 2023 and was ordered to liquidate by a Hong Kong court in January of 2024. However, the bulk of the company's assets are in mainland China, outside the jurisdiction of U.S. and Hong Kong courts, so the real scope the liquidation will have is still unclear. Country Garden was meanwhile first petitioned to liquidate in February, also in Hong Kong, and will face the the prospect again on May 26. Both companies are in the process of restructuring their debt, which in the case of Evergrande, exceeded its annual revenue 10 times and stood at 1.8 percent of China's GDP. When Chinese regulators capped developers' debt-to-cash, debt-to-assets and debt-to-equity ratios in 2020, they set of the incredible meltdown of the property sector in the country in motion.

Experts believe that a full restructuring of a property giant like Evergrande could take a decade, during which creditors like construction companies but also home buyers are left in perpetual limbo. While the meltdown has not taken the entire Chinese economy down with it (and is not expected to do so), there are still ripple effects causing other business sectors to also make less money now that the property sector is in crisis.

Additionally, the continued woes of the Chinese real estate sector are a symbol of the lagging of the Chinese economy and lowered domestic demand for goods and services in general. The spectacular nature of the meltdown is further discouraging consumers. Foreign direct investment into China also fell for the first time in 2023, which could be another sign of a crisis of confidence in relation to the country.