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China’s property predicament persists

Property problems persist for China, despite President Xi Jinping’s efforts to resolve them.

China Vanke, a major state-owned developer backed by the Shenzhen government, took the spotlight on Monday and Tuesday. Yesterday, attention turned to the troubled China Garden, which missed a coupon payment.

Media reports revealed that the company missed an interest payment on a yuan bond for the first time. This adds to the challenges faced by the Chinese developer, which is confronting a Hong Kong court action seeking its offshore liquidation.

The missed payment, albeit small at 96 million yuan (approximately $13 million USD), suggests that Country Garden may have lacked sufficient preparation for the transaction, indicating possible financial strain.

As a consequence of this news, offshore yuan and Chinese shares declined. Mainland markets saw a slight dip, with the CSI 300 index of blue chips down by 0.7%. The Hang Seng also experienced a decline, while Country Garden shares dropped nearly 5% in Hong Kong on Wednesday.

Despite a 30-day grace period for the payment, potential issues may not surface until April. However, the involvement of an onshore loan in China makes it a significant concern for the government.

“Sales recovery has fallen short of expectations, so fund allocation remains under pressure,” Country Garden stated in a report cited by Western media. The company intends to exhaust all available means to raise cash during the grace period, including through sales, asset disposal, and expenditure cuts.

Unlike China Vanke, which receives support from the central government and financial institutions, Country Garden appears to lack high-level support from the Party and Xi’s administration.

Country Garden unsettled markets when it defaulted on its dollar debt last October but has thus far avoided defaulting on its local-currency obligations. In September, the developer extended over 10 billion yuan of yuan bonds by three years. Following that, it made several coupon payments and paid off an 800 million yuan note in December. Now, it struggles to make a coupon payment approximately 10% the size of December’s payment.