China Property Crisis Deepens With 87% Wipeout in Developers’ Bonds

• China’s property sector has faced mounting stress in recent years, with developers struggling to service their enormous debt.
• Investor anxiety about the property crisis has fueled a rout in Chinese developers’ dollar bonds, which have lost 87% of their value, according to Debtwire.
• As many as 53 Chinese developers have collapsed in recent years.

China’s economy is facing many headwinds at the moment, and its once-booming property sector is increasingly looking like a bad bet for foreign investors.

The market for Chinese developers’ dollar-denominated bonds has seen a meltdown over the past two years,  losing a staggering 87% of value. The rout has wiped out $135.5 billion of value from $154.9 billion of outstanding notes, according to an analysis by Debtwire. 

“The average price on the notes is now only a tad above 11 cents on the dollar,” Debtwire co-managing editor Chaim Estulin wrote in an accompanying LinkedIn post.

The crash in Chinese builders’ dollar debt is symptomatic of the broader crisis facing the nation’s real-estate sector, which has seen 53 companies collapse in the space of little over two years. Investment in the sector fell 7.9% in the first half of this year, official data show. The industry as a whole shrank last quarter, resuming a contracting trend in place since 2021.

Country Garden Holdings – once China’s largest developer by sales – risks being the next domino to fall, “if it doesn’t cure two missed 7 August bond coupons by the end of a 30-day grace period, according to Debtwire. The company just reported a $6.7 billion loss for the first half of the year.

The embattled industry has been hanging on to every word of the Chinese government – whose long-awaited commitment to stimulate the slumping sector has not yet materialized. 

It’s a sector worth saving, too – China’s property industry is gigantic. It accounts for about 30% of the country’s overall output, and the headwinds it faces include heavy debt burdens and sluggish demand for new properties. This was a contributing factor in stunting the nation’s second-quarter GDP growth, which came in at 6.3%, below economists’ forecasts of up to 7.1%.

Economists remain pessimistic about China’s economic prospects – forecasters polled by Bloomberg have cut their growth expectations for both 2023 and 2024.