China Corporate Bond Defaults Hit Highest Since Early This Year... Severe Housing Market Slump

Concerns over a Chinese economic downturn are rising due to the default crisis of Chinese real estate developer Biguiyuan, with corporate bond defaults in China reaching their highest level since early this year. The downturn in China's housing market is also reported to be far more severe than previously known.

According to Bloomberg on the 17th, the amount of unpaid corporate bonds issued by Chinese companies in June and July totaled 7.5 billion yuan (about 1.4 trillion KRW). This is the highest level of unpaid amounts over two months since December last year and January this year.

As new home sales in China decline and the economic downturn accelerates, many real estate developers are struggling to meet their debt obligations.

In the case of state-owned construction company Sino-Ocean Group, it failed to repay bonds worth 2 billion yuan (about 370 billion KRW) that matured on the 2nd. The company stated that if repayment is demanded at the time of maturity, default is inevitable, but the bond repayment date could be postponed by 30 days.

Biguiyuan, one of China's three major private real estate developers that triggered the corporate bond default crisis, is currently seeking ways to extend maturities. On the 7th, Biguiyuan failed to pay interest of 22.5 million dollars (about 30 billion KRW) on two types of corporate bonds with a face value of 1 billion dollars (about 1.33 trillion KRW). If interest is not paid within the 30-day grace period, an official default will be declared.

Bloomberg Intelligence warned that Biguiyuan's default will have a greater impact on China's housing market than the collapse of Evergrande, which faced bankruptcy at the end of 2021.

Looking at Chinese real estate agents and private data, the current downturn in China's real estate market is much more severe. According to these data, housing prices have fallen by at least 15% not only in half of the second- and third-tier cities but also in major metropolitan areas such as Shanghai and Shenzhen. Housing prices near Alibaba Group's headquarters in Hangzhou have dropped about 25% from their peak at the end of 2021. The market pointed out that the Chinese government's official housing price index is likely underestimating the extent of the downturn.

Global investment banks are also lowering their growth forecasts for China. Morgan Stanley, in a report released on the 16th, lowered its forecast for China's GDP growth rate this year from 5% to 4.7%, a 0.3 percentage point cut. The forecast for next year was lowered from 4.5% to 4.2%. Morgan Stanley cited the real estate market downturn and sluggish investment due to fiscal pressure on local governments as reasons for the downward revision of growth rates.

This content was produced with the assistance of AI translation services.