China’s Deepening Housing Problems Spook Investors

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retail sales. Problems are also cropping up in other financial-asset classes in China. Three publicly listed companies said in recent days that they didn’t receive payments they were promised on wealth-management products sold by Zhongrong International Trust, which is part of Zhongzhi Enterprise Group, a large domestic Chinese conglomerate.

The missed payments are making investors worried about China’s sprawling trust industry, which has been a source of funding for property developers in the past. Country Garden admitted to having liquidity problems last week and said it expects to post a big first-half loss. A default by the 31-year-old developer could have a bigger impact on China’s economy than the slow-motion fallout from China Evergrande Group’s debt crisis that began in 2021, some economists predict.

The company withstood the earlier slump that took down Evergrande and Sunac China, which together with Country Garden had been China’s three biggest privately run developers. “Country Garden’s default would mean a complete reshuffle and reorganization of China’s real-estate industry," said Wang Shengzu, global head of asset management at Haitong International. When Evergrande defaulted on its international debt, China’s economy was in much better shape.

The country was enjoying a boom in exports, and global investors widely believed that growth and domestic demand were being suppressed by its strict Covid-19 pandemic restrictions. China has since lifted those restrictions, but its economy has sputtered. Before the downturn, Country Garden’s annual contracted sales were close to that of Evergrande’s by total value, but the former’s larger presence in China’s less prosperous cities meant it sold more homes at cheaper