Country Giant, one of the biggest real estate developers in China, is moving towards a default as its shares plunged. This is because the property giant missed payments and warned about its possible losses of billions of dollars. This deepened fears for the Chinese economy, as the real estate sector of the country has a lot of debt.
According to Reuters.com,
“Once considered a more financially sound developer, Country Garden’s woes could also have a chilling effect on homebuyers and financial firms, with more private developers close to a tipping point if Beijing’s support does not materialize soon.”
As per the company’s own accounts, Country Garden has been hit hard on the sales front. Now, the company needs about 28 to 30 billion yuan per month of sales to make cash and cover the pre-sold projects. Given the situation of the Chinese economy, Country Garden is suffering from a liquidity crisis. This, in turn, made investors cynical of the company.
There are alarming risks for Chinese households, as the country’s economy is facing a high level of uncertainty for the world economy as well. The risks increased in recent weeks with various new occurrences on the economic front.
The first problem is that the Chinese economy slowed by a big number after winter, which, in turn, removed any hope of a big economic expansion after China lifted the Covid restrictions. Furthermore, this week’s data showed that China’s exports have been declining for three months, and the imports have been declining for five months.
Moreover, adding to the woes is the fact that prices of various things have fallen across China, ranging from food to apartments. This raised the risk of the Chinese economy going to the brink of deflation. Otherwise, the risks could lead to sustained price drops, which can lead to anemic commercial activity.
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