China is grappling with a monumental financial challenge as the turmoil in its real estate sector reverberates throughout the broader economy. Amid a backdrop of liquidity crises among numerous real estate developers, the country is witnessing its own Lehman moment.
On Wednesday, a group of investors staged a protest outside the Beijing headquarters of Zhongrong International Trust Co., one of the country’s leading trust companies and financial services providers. Zhongrong is controlled by the financial conglomerate Zhongzhi Enterprise Group, one of the largest asset manager in China, with over $138 billion of assets under management.
At the forefront of these concerns is Zhongrong’s failure to meet its payment obligations, adding to mounting apprehensions about China’s substantial $3 trillion shadow banking sector.
Protesters gathered in front of Zhongrong’s headquarters in Beijing, according to Bloomberg, demanded the money be returned and explanations. The atmosphere surrounding distressed Chinese developers has grown tense, with heightened police presence around their premises as protests intensify.
Regulators Halt Short Selling, Country Garden’s Default Risk Intensifies
As the financial crisis deepens, regulatory actions and corporate defaults amplify the distress.
Chinese authorities have taken measures to halt short selling and urged investment funds to refrain from being net sellers of equities amidst an ongoing market rout.
In another alarming development, Country Garden Holdings Co., a once-pioneering real estate developer in China, issued a warning regarding “major uncertainties” in the redemption of its bonds.
This pronouncement comes as the company stands on the brink of default if it fails to make a $45 million bond interest payment within a 30-day grace period ending on Sept. 8. Country Garden’s offshore bond maturing in January 2024 is currently trading at less than 10 cents on the dollar, reflecting the market’s lack of confidence in its financial stability.
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Earlier this week, the builder also halted trade on 11 onshore notes issued by the company and its subsidiaries. Country Garden’s assets totaled over $250 billion in 2023.
As concerns about the Chinese economy grew, JP Morgan Chase & Co. reduced its 2023 growth prediction for the country from 5% to 4.8%.
Chart: Country Garden’s Offshore Bond Maturing January 2024 Trades At 10 Cents On The Dollar
Market Reactions
The Shanghai Composite declined 0.82% to 3,150 on Wednesday, while the Shenzhen Component fell 0.94% to 10,580, both down for the fourth consecutive day.
The Hang Seng Index fell 251.81 points, or 1.36%, hitting the lowest point since the end of May. The offshore yuan fell past 7.30 per dollar, reaching its lowest level in nearly nine months.
Chinese stocks listed in the United States opened lower on Wednesday, extending previous losses.
Alibaba Group Holdings Ltd BABA is down 3.4%, JD.com Inc. JD is trading 4.8% lower, and NIO Inc. NIO is down 1.5% at the time of publication on Wednesday.
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