One Third of Chinese Developers Stare at Debt Crisis, Many Heading to Bankruptcy

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One third of China's property developers will struggle to repay their debts in the next 12 months, according to a new report. The sector reckons with increasingly serious headwinds from falling sales, restricted access to credit and a wider downturn, The Guardian reported.

Many More Heading Towards Bankruptcy

Even if the embattled developer Evergrande manages to meet its latest debt repayment and averted a potentially disastrous default, analysts at the credit rating agency S&P warned that many other property companies could be heading towards bankruptcy, the report added.

 Evergrande Group

The financial contagion sweeping through the sector represents a serious risk for China - and the global economy - as its investment and construction driven model of growth begins to creak under the strain of mind-boggling debts, the report said.

China has suffered housing market downturns before but this one is set to be "unusually intense", S&P said.

China property market
China property prices are expected to fall in 2017 Reuters

Although Evergrande has emerged as the symbol of the debt-laden structure with liabilities of $300 bn at home and abroad, the Chinese property sector as a whole owes an estimated $5 trillion, according to analysts at Nomura. That is one-third of the country's entire GDP and roughly equivalent to the whole output of the Japanese economy, the world's third largest.

Cut out of Conventional Borrowing

Property companies must come up with $92 bn as bond payments mature in the next year. This task has been made much more difficult because many were cut out of conventional borrowing channels after Xi Jinping's "three red lines" crackdown on lending to the sector.

"We believe that defaults will rise as firms enter a prolonged down cycle, amid heightened refinancing risk and steep maturity walls coming due this year and next," S&P says in its report this week.

This article was first published on October 28, 2021