Country Garden Fall from Grace: When China’s real estate giant, Country Garden, stumbled on debt payments in August, it sent shockwaves through the industry. The 14% decline in its stock marked a significant fall from grace, turning the company from a poster child to a struggling entity grappling with creditor payments.
Simultaneously, reports emerged that Chinese authorities were discreetly engaging in discussions with Ping An, exploring the possibility of the insurance group taking a controlling stake in Country Garden. While Ping An denied these reports, interviews with various stakeholders, including contractors, workers, and homebuyers, along with an examination of lawsuits involving Country Garden, revealed a period of internal struggles predating the public acknowledgement of its financial problems.
Up until the middle of the year, Country Garden enjoyed a reputation as a symbol of strength in a real estate sector facing challenges such as escalating debt, stricter regulations, and a downturn in sales. It stood out as one of the few developers capable of issuing state-guaranteed onshore bonds in the previous year and securing credit lines from banks in early 2023.
China, as the world’s second-largest economy, grappled with the aftermath of COVID-19 shutdowns and issues in its substantial property sector. Country Garden’s woes underscore the broader challenge faced by Beijing as it attempts to orchestrate a rescue plan for the company while simultaneously improving conditions for the industry at large.
The widespread belief that Country Garden was too significant to fail, fuelled by what was perceived as an implicit state guarantee, came crashing down. Observers, including the Economist Intelligence Unit’s Xu Tianchen, acknowledged the company’s substantial liabilities of approximately $190 billion and over 3,000 ongoing projects. However, the revelation of earlier financial strains, not previously disclosed, shed light on a different reality.
Also Read: China Eyes Ping An: The Potential Savior for Country Garden?
Instances of financial pressure on Country Garden, reported for the first time, include an unpaid valve supplier since 2022, a steel provider partially compensated with apartments, reports of stalled projects dating back to January from homeowners and workers, and a Country Garden subsidiary admitting its insolvency and overwhelming financial struggles in court earlier this year.
Legal battles involving Country Garden and its contractors, encompassing disputes over delayed construction and missed payments, surged to a record 459 cases in the current year, as reported by data compiled by the Economist Intelligence Unit’s Xu.
Country Garden, when approached for comment, declined to provide any statements.
In the aftermath of its default, Country Garden has emphasised its commitment to prioritizing the delivery of homes. In a recent announcement, the company stated that it successfully delivered approximately 460,000 units in the first ten months of 2023.
Ironically, in July, just weeks before defaulting on debt payments, Country Garden launched a campaign on its WeChat channel titled “Beautiful Delivery.” The campaign aimed to showcase newly constructed apartments and satisfied homeowners, even claiming that some projects were delivered ahead of schedule.
Despite the public display of confidence, behind closed doors, the contrast between Country Garden’s outward image and its internal challenges became evident through court documents.
In a case involving alleged delayed delivery of apartments in the central mega city of Chongqing, a local Country Garden subsidiary admitted owing 60 million yuan ($8.2 million) in project payments. The subsidiary claimed it faced severe financial losses and was incapable of covering its liabilities. The court’s verdict in June stated that the subsidiary was “insolvent and overwhelmed,” and even if the damages were reduced at the court’s discretion, fulfilling future obligations would still be challenging.
Similar instances from last year and early this year emerged in other court cases, involving amounts as small as 267,475 yuan in arrears for 50% of an elevator installation fee or 2.8 million yuan demanded by an electrical installation company.
Some larger contractors opted to skip the court process altogether, highlighting the preference for negotiating with Country Garden to recover owed funds rather than pursuing a time-consuming and potentially unsatisfactory legal route. A south China-based steel supplier, speaking anonymously due to the sensitivity of the situation, disclosed that the priority was to secure owed funds through negotiations.
The supplier, owed several million dollars for reinforced steel bars, was promised half of the owed amount in unfinished apartments, with the remaining half to be paid in cash. However, the supplier has received only a quarter of the cash payment, indicating a worsening situation since the second half of 2022.
The repercussions of Country Garden’s financial strain extended beyond the missed August payments. A week after the default, contractor Qiao Jingjing reported a stalled construction site in Xinzheng, a city of 1.2 million in Henan Province. Left with 20,000 yuan in unpaid wages for two months of work, Qiao Jingjing, 38, representing Jujiang Group, a subcontractor at the site installing aluminium sheets, disclosed that his company was owed more than 770,000 yuan by Country Garden.
Country Garden, when queried about payment or delivery disputes, did not provide responses.
Qiao Jingjing described a scenario where apartment buyers and construction workers continually approached Country Garden offices seeking information. However, he highlighted the lack of responsiveness from Country Garden’s sales staff to crucial questions about when construction would resume, when the property could be handed over to owners, and when workers would receive their wages.
This narrative paints a complex picture of a once-respected industry leader grappling with internal financial challenges, legal disputes, and strained relationships with contractors and workers. The ongoing situation poses significant challenges not only for Country Garden but also for the broader real estate industry in China, prompting questions about the efficacy of Beijing’s potential rescue efforts and the sector’s overall stability.
Our Reader’s Queries
Why did Country Garden collapse?
Amidst China’s worsening property crisis, the property giant has been unable to repay a loan and has indicated that it will default on its debt. This unfortunate turn of events has made it one of the largest casualties of the crisis.
What is the problem with China Country Garden?
Newly reported financial struggles for Country Garden include unpaid bills to a valve supplier since 2022, partial payment to a steel provider with apartments, and stalled projects reported by homeowners and workers as early as January. Additionally, a Country Garden subsidiary recently appeared in court. These challenges highlight the company’s ongoing financial strain.
What happens if Country Garden defaults?
If Country Garden defaults, it could worsen China’s real estate crisis, increase pressure on domestic lenders, and potentially hinder the recovery of both the property market and the broader Chinese economy. This highlights the importance of avoiding default and finding solutions to address any financial challenges.
How much debt does Country Garden have?
Country Garden, a highly indebted builder with total liabilities of $186 billion, is facing a critical deadline. The company must make a payment by October 17-18, the end of a 30-day grace period, or risk defaulting.