China’s biggest property developer, Country Garden Holdings, reported a whopping loss of almost 14 billion yuan (2.7 billion Australian dollars) and warned that “only the fittest will survive” the country’s crisis-plagued property sector.
The firm suffered an extraordinary 96 percent loss in profits and blamed a “serious depression” in the housing market.
Its preliminary net profit collapsed from 15 billion yuan (3.1 billion Australian dollars) to 612 million yuan (130 million Australian dollars) in the first six months of the year.
China’s real estate sector is unraveling in the wake of the country’s harsh pandemic restrictions, with frustrated homeowners engaging in unprecedented mortgage boycotts.
In August, the nation recorded its 12th consecutive month of falling property sales as cash-strapped developers struggle to complete projects.
Country Garden’s shares have fallen 70 percent this year, despite having thousands of real estate projects and a presence in 300 Chinese municipalities.
The developer had previously warned that its earnings could drop by as much as 70 percent, but the reality was even bleaker.
“In 2022, the real estate sector faced myriad challenges, including weakening market expectations, sluggish demand and a drop in property prices,” the company said.
“All of this is putting increasing pressure on all participants in the real estate market, which has rapidly slipped into a severe depression.
“The hostile business environment in which only the fittest can survive means even higher requirements for the competitive strength of companies.”
‘Forces beyond our control’
So far, more than 20 major Chinese developers have defaulted on their debts in the last year alone, and S&P Global Ratings warns that around 20 percent of Chinese developers are at risk of becoming insolvent.
The country’s property crisis was sparked last year by China’s Evergrande, which has now become the world’s most indebted property developer after racking up nearly $300 billion (Aus$436 billion) in liabilities.
Hong Kong-listed Country Garden said it delivered a quarter of a million apartments on time and acquired a total of 3,179 real estate projects in mainland China.
“Forces beyond our control, such as the resurgence of the pandemic in various parts of mainland China and extreme weather, along with the downturn in the real estate sector, weighed on the company’s profitability indicators,” he explained.
Cut the fortune of billionaires
As a result, the wealth of the company’s majority shareholder and the founder’s daughter, Yang Huiyan, who is the richest woman in Asia, was cut in half.
Yang’s net worth plummeted by more than 52 percent from $33.9 billion ($23.7 billion) to $A16 billion ($11.3 billion) a year ago, according to the Bloomberg Billionaires Index.
He inherited his wealth when his father, Country Garden founder Yang Guoqiang, transferred his shares to him in 2005, according to state media.
But Country Garden said there was still “hope” in a crisis that points to the fact that the country’s urbanization still has a long way to go.
“China’s economy has proven resilient and its strong foundations for long-term development remain intact,” he said.
“The country’s new type of urbanization still has a long way to go, and the desire for a good life will always remain in people’s hearts. The real estate industry will always exist.
“We will persevere and remain hopeful despite adversity.
“Country Garden keeps its feet on the ground as it works hard to get through a harsh winter and anticipates the arrival of spring.”
In a new report, Morgan Stanley economists said the housing market is at a “critical juncture.”
The crisis is deeper
In general, China’s economy is being hit hard. In late August, he made headlines after announcing an ambitious 19-point plan worth A$63 billion to bolster his ailing financial system.
But according to a number of experts, it may not be enough to save the fortunes of the world’s second-largest economy.
The desire to prevent a massive death toll by allowing Covid to spread across the country is crippling the economy as millions of people are regularly forced into lockdown.
ANZ Bank’s Raymond Yeung was the latest to cut China’s growth to 3 percent for the year, due to the stricter Covid-zero strategy presented to the Communist Party Congress in mid-October.
The previous one-child policy is also creating a demographic cliff and China’s population is expected to shrink in 2022, five years earlier than expected, which is also expected to weigh on economic growth.
However, an unemployment crisis is also unfolding with one in five people between the ages of 16 and 24 already out of work, while lucrative tech jobs have been shuttered amid a Chinese government crackdown on the sector.
Chinese tech giant Tencent posted its first drop in quarterly revenue in August since going public as the company grapples with China’s economic downturn, pandemic disruptions and ongoing scrutiny from regulators.
Tencent is among the biggest names in China’s tech industry still reeling from a regulatory crackdown by Beijing, which began in late 2020 to crack down on anti-competitive practices and end a decade of rampant growth.
Regulatory actions have wiped out more than $1 trillion from the combined market value of the country’s tech giants in 2021, according to Bloomberg News estimates, though Tencent has retained the crown as China’s most valuable company.