New York: Property developer Evergrande’s US bankruptcy serves as a cautionary tale about the growth-at-all-costs model that underpinned China’s spectacular growth over the past 30 years, the media reported.
For decades, Evergrande, once one of China’s most successful real estate developers, gobbled up debt as China’s economy exploded. Demand for housing was so strong, homebuilders often pre-sold apartment units to buyers before construction was complete, CNN reported.
But a sudden shift in policy by China’s leaders two years ago has left the country’s property developers scrambling for cash, compounding a financial risks within the world’s second-largest economy, CNN reported.
Evergrande’s liquidity crisis was just the beginning of the pain. Other large builders in China have since defaulted as they struggle to shore up cash and demand for housing has fallen.
Now, investors around the world are watching nervously as Country Garden which employs some 300,000 people, missed two payments on its multibillion-dollar debt and said it was considering “various debt management measures”, CNN reported.
The cash-strapped developer’s debt is now seen as a “very high risk” asset, according to Moody’s, which downgraded its rating on Country Garden last week, CNN reported.
Country Garden has until early September to make the payments it missed.
It’s hard to overstate the importance of the property market China. The industry accounts for as much as 30 per cent of the country’s economic activity, and more than two-thirds of household wealth is tied up in real estate.
But nearly three years of “zero Covid” restrictions sapped China’s economic growth, and consumers have been reluctant to buy new homes in the face of higher unemployment and falling property values, CNN reported.
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