Country Garden, once China’s largest developer, is facing a liquidation petition for failing to repay a loan worth approximately $205 million. This latest development highlights the ongoing housing crisis in China and undermines Beijing’s efforts to restore confidence in the property market. However, experts believe that winding up petitions have little chance of being accepted in mainland China.
The liquidation petition was filed by Ever Credit, a unit of Hong Kong-listed Kingboard Holdings and Country Garden’s offshore creditor. The petition has been approved by Hong Kong’s High Court, and the first hearing is set for May 17. Country Garden has opposed the petition, stating that the debts in question represent only a small fraction of its total offshore liabilities and would not jeopardize its ability to deliver homes, continue its business, or restructure overseas debts.
The acceptance of Hong Kong’s liquidation order in China is uncertain, as it is more of a legal issue than an economic one. Experts believe that the domestic mainland court is unlikely to recognize the decision. This follows a similar liquidation order on Evergrande by a Hong Kong court in January, which was seen as a precedent for restructuring efforts but faced challenges due to Evergrande’s complex organizational structure. The key concern with these petitions is whether mainland authorities would acknowledge the decisions made by Hong Kong courts, as accepting them could destabilize the domestic property sector and potentially allow foreign investors to make claims on China’s domestic assets.
While winding up petitions like these have limited macro impact, they add pressure on Beijing as it tries to increase confidence in the property industry, which contributes a significant portion to China’s GDP. The petition could reignite worries among homebuyers and creditors about the debt issue in the Chinese property sector, further diminishing prospects for a rebound in the property market and the overall Chinese economy. Several developers have already failed to meet their repayment commitments and are undergoing debt restructuring procedures.
Foreign investors are cautious about investing in China’s property sector due to concerns about the country’s economy and skepticism about Beijing’s commitment to supporting it. China continues to face challenges such as a housing crisis, deflationary pressures, and a shrinking population. This cautious approach by foreign investors, coupled with the lower repayment priority for offshore bonds, amplifies their risk-averse sentiments.
In response to the property slump, Beijing has been taking measures to support the market, including instructing state banks to increase financing to residential projects and loosening buying limitations in major cities. The Ministry of Housing and Urban-Rural Development has also ordered local governments to work on their housing development plans for 2024 and 2025. These proposals aim to improve the stability of housing and land supplies, provide developers with funding for debt repayment, and enhance the affordability of housing.
Overall, the liquidation petition against Country Garden intensifies the challenges faced by the Chinese property market and puts pressure on Beijing’s efforts to restore confidence. While winding up petitions have little chance of being accepted in mainland China, they contribute to concerns among homebuyers and creditors and add to the risk-averse sentiments of foreign investors. Beijing’s measures to support the market are aimed at stabilizing the sector and improving the affordability of housing. However, the long-term success of these measures remains to be seen.
