Domestic Financial Firms' Exposure to Chinese Real Estate Companies Limited to 20 Billion Won

Total Exposure of Chinese Real Estate Firms at 370.3 Billion
"Minimal Impact on Domestic Financial Market... Further Investigation Needed"

Including Biguiyuan (Country Garden), which is facing a default crisis, the exposure of domestic financial institutions to major Chinese real estate developers was found to be around 20 billion KRW. Experts say the impact on the domestic financial market is minimal, but they advise close monitoring of indirect ripple effects.

According to data obtained by Asia Economy on the 14th through the office of Choi Jong-yoon, a member of the National Assembly’s Political Affairs Committee from the Democratic Party of Korea, titled ‘Investment Status of Domestic Financial Companies in Chinese Real Estate Groups,’ the exposure of domestic financial institutions to four major Chinese real estate developers?Biguiyuan, Evergrande, Longfor, and Vanke?was confirmed to be 20.46 billion KRW as of the end of August (based on the exchange rate applied at the end of July). This includes 19.9 billion KRW in corporate bonds, 350 million KRW in stocks, and 210 million KRW in collective investment securities.

The Chinese real estate risk triggered by the Evergrande Group’s bankruptcy at the end of 2021 has extended to the default crises of Wanda and Biguiyuan. In particular, as of June this year, Biguiyuan’s debt maturing within one year (108.7 billion yuan) exceeds its cash holdings (approximately 101.1 billion yuan), raising concerns about default. Biguiyuan is China’s largest private real estate developer competing with Evergrande for the top industry position, with project sizes reportedly four times larger than Evergrande’s.

The total exposure of domestic financial institutions to Chinese (including Hong Kong) real estate developers was identified as 370.3 billion KRW. Securities companies accounted for the largest portion at 223.7 billion KRW, followed by insurance companies with 139.4 billion KRW, banks with 6.45 billion KRW, and mutual finance institutions with 800 million KRW. All were in securities such as corporate bonds and asset-backed commercial paper (ABCP), with no loans or payment guarantees reported.

Experts agree that although the exposure scale is small, indirect damage could occur, warranting close attention. Joo Won, head of the Economic Research Office at Hyundai Research Institute, said, “Whether looking at the total scale or the scale related to the four companies, the impact can be considered negligible. However, since private real estate investments are difficult to track, it is necessary to further investigate whether there are indirect investments routed through third countries.” Representative Choi stated, “The Chinese real estate crisis seems to have eased somewhat through bond maturity extensions, but this is not a fundamental solution to the real estate market downturn.” He added, “Financial authorities should not be optimistic by only looking at the investment scale of our financial companies but should closely monitor the situation in China to respond immediately in case of emergencies.”

[Image source=Yonhap News]

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