Deepening problems for the Chinese financial system – World … – WSWS

The Chinese financial system is running into major problems with analysts saying that a “vicious cycle” could be set off. The warning has been triggered by a significant downturn in the property market, the renewed threat of debt defaults and the failure of a large investment trust to make payments on two of its products.

Construction cranes near central business district office buildings in Beijing, Wednesday, March 15, 2023. [AP Photo/Andy Wong]

The property market has been of concern for at least five years as exemplified by the parlous position of the major developer Evergrande since 2021. Its access to cheap money, the basis of its business model, dried up because of tighter government regulations aimed at trying to control of the growth of debt.

At the start of this year, with the scrapping of all measures to contain COVID, the property market appeared to be picking up as part of a general upturn in the Chinese economy. That proved to be very short lived with all the major economic indicators turning down amid the onset of a deflationary environment.

Now property market woes have returned with a vengeance, exemplified by the fact that they have hit Country Garden, a 31-year-old firm and the largest survivor in the market. It had been held up by Chinese financial authorities as a model for others.

Its troubles surfaced at the beginning of the month when it failed to make interest payments of $22.5 million on two securities with a total face value of $1 billion.

The fact that the company was struggling just to make an interest payment, rather than the full repayment of a bond, was seen by analysts as indicating “a very tight liquidity” situation.

With a 30-day grace period, the company has until September 6 to make the payments before bond holders can send it a notice of default.

It may well find the cash in the short-term but longer-term problems continue to grow, not least how it will deal with its $300 billion debt load in conditions of a rapidly falling market.

The company has said it expects to record its biggest loss since going public 16 years ago. The loss could be around $7.6 billion for the first half of year, under conditions where its contracted sales fell 60 percent in July from a year earlier.

One of the Country Garden bonds in question matures next month. Earlier this week the bond was reported to be trading at 27 cents on the dollar, compared to being close to par at the start of the year and 50 cents a few weeks ago.

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Javier Ortiz

Navegando entre las corrientes de la información con pasión y destreza, soy Javier Ortiz, un Experto en Artículos Web que teje palabras con la intensidad de un golazo en el último minuto. Mi paso por la Universidad Antonio de Nebrija templó mi pluma con el calor del conocimiento. Como un cronista de la vida moderna, mis escritos surcan desde los campos de fútbol hasta los extremos del deporte, desde los engranajes de la economía hasta los laberintos de la política, y desde los misterios de la religión hasta las alturas de la espiritualidad. Cada palabra es un punto en la red, tejido con la fibra de la autenticidad. Únete a mí en este viaje donde las letras se convierten en senderos de emoción, donde el fútbol comparte espacio con la adrenalina, donde el motor económico se conecta con el engranaje político y donde la esencia humana encuentra su refugio en el vasto mar de la espiritualidad.

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