$15.5 billion bloodbath as chaos hits Chinese property developers

Another prominent Chinese property developer is on the brink and the consequences of collapse could impact the entire world.

Another prominent Chinese property developer has filed for bankruptcy protection over its $15.5 billion foreign debt as police raid the investment arm of its embattled competitor, Evergrande.

Sunac has applied to the US Bankruptcy Court for protection in that country after its creditors authorised a comprehensive debt restructure. Its total liabilities – both at home and abroad – top $213 billion.

Evergrande made the same application in the US after announcing it had accrued debts of more than $450 billion.

And fears continue to grow that China’s biggest builder, Country Garden, is on the brink of default. It was given a temporary reprieve this week after Chinese creditors again approved an extension on repayments for a set of bonds.

The moves allow both companies to refer cross-border insolvency claims to the US court system for resolution. This is likely intended to streamline the negotiation process with international lenders.

International analysts fear global investment organisations are heavily exposed to these debts, which may pose a risk to the stability of global financial markets.

Sunac China Holdings Limited has filed for bankruptcy protection over its $15.5 billion foreign debt. Picture: Ichiro Ohara / Yomiuri / The Yomiuri Shimbun via AFP

When housing bubbles burst

An industry-wide sales slump has presented Chinese property developers with a cash crunch.

Many developers had geared their ability to pay contractors and investors to continuously increasing numbers of pre-build purchases by Chinese homeowners.

So far, a series of interest rate policy adjustments and relaxations of property ownership restrictions have failed to stimulate the market. And that market represents more than a quarter of the world’s second-largest economy.

Now, the Chinese Communist Party has begun pursuing the industry’s big players with allegations of fraud.

Evergrande’s wealth management unit in Shenzhen, southern China, was raided at the weekend. Several of its staff have been detained on suspicion of “illegal fundraising”.

“Recently, public security organs took criminal compulsory measures against (general manager) Du (Liang) and other suspected criminals at Evergrande Financial Wealth Management Co,” Shenzhen Nanshan District Police Bureau said on Saturday.

No further details were provided.

A housing complex by Chinese property developer Evergrande in Beijing. Picture: Noel Celis / AFP

The unit’s role was to source investors through China’s “shadow bank” network, where trusts could be used as financial vehicles to avoid much stricter banking regulations.

But Beijing’s economic woes are not over yet.

China’s National Bureau of Statistics released real estate figures late last week showing the market was still in decline. As a result, property resale values in several key cities fell at levels higher than at any point in the past 10 years.

Several cities are attempting to reverse the trend by relaxing strict limits on the number of houses individuals can purchase.

Failure’s fallout

As the world’s second-largest economy teeters, the Chinese Communist Party is cracking down on corruption.

Military generals and high-profile central government officials have been “disappeared”. But the fate of business figures tends to be a much more public affair.

Wang Bin, the Chairman of China Life Insurance, has been sentenced to death.

He was recently found guilty of taking $69 million in bribes.

Wang Bin, Chairman of China Life Insurance Company Limited, has been sentenced to death. Picture: VCG/VCG via Getty Images

According to documents obtained by the BBC, the former Communist Party chief was awarded a two-year reprieve, with the likelihood of it becoming life imprisonment without parole.

He’s the lucky one.

Huarong Insurance chairman Lai Xiaomin was executed in 2021 after being convicted of corruption and bigamy.

But two other major financial players are at risk of paying with their lives: Liu Liange, party chief of China’s central bank, Bank of China, is under investigation for “serious violations”. One of its deputy governors, Fan Yifei, has been expelled from the Party and is also under investigation.

The fate of the Evergrande employees is yet to be determined. But police have asked the public to come forward with any fraud complaints.

The Shenzhen Province government says the raid on the Evergrande headquarters was “a positive significance in regulating and stabilising the financial market”.

“According to the current public information, Evergrande Wealth and its related parties illegally collected funds to form an internal fund pool, violated the contract and mismatched product investment directions and deadlines, causing losses to investors,” the statement circulated on to Weibo social media service reads.

Jamie Seidel is a freelance writer | @JamieSeidel

Originally published as $15.5 billion bloodbath as chaos hits Chinese property developers