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Yang Huiyan, majority shareholder of Country Garden, one of China’s largest real estate groups, has halved his fortune in just one year. A turnaround that highlights the difficulties of a Chinese market now closely watched by Beijing authorities. Explanations.
She is still the richest woman in Asia, but with her fortune halved. In just one year, Yang Huiyan’s fortune has grown from $23.7 billion to $11.3 billion, according to the Bloomberg billionaire ranking released this week. A dizzying crash that once again illustrates the fragility of the Chinese real estate market.
Yang Huiyan, a discreet heiress, is the majority shareholder of Country Garden, a company founded by her father in the early 1990s that has grown into one of the major promoters in China.
The company posted the industry’s biggest sales last year despite a real estate crisis, symbolized by Evergrande Group, the former No. 1 burdened with an abysmal $300 billion slate.
Country Garden is far from badly off, but like most Chinese real estate giants, it is heavily indebted. But since 2020, Beijing has been whistling the end of the break: the conditions for project promoters to access bank loans have become significantly more restrictive. Aim: to avoid a collapse of the sector that could be potentially catastrophic for the entire Chinese economy.
victims of market fears
Therefore, in order to meet its payment deadlines and make new investments, Country Garden has decided to offer new shares for sale on Wednesday 27 July in order to increase its liquidity.
“However, this stake sale was interpreted as a sign of vulnerability in a troubled sector that is a significant contributor to China’s GDP. The financial markets are therefore very nervous,” analyzes economist Mary-Françoise Renard, author of China in the World Economy (ed. Blaise Pascal University Press).
As a result, Country Garden’s shares lost 15% of their value on the Hong Kong Stock Exchange, effectively dealing a severe blow to Yang Huiyan’s portfolio.
“The tightening of credit access conditions was necessary, but in the short and medium term it increases the difficulties of these companies, which are finding it increasingly difficult to finance themselves,” explains Mary-Françoise Renard. “Country Garden could easily have borrowed from banks a few years ago.”
Cascading payment defaults
If Country Garden was able to raise funds at the cost of a fall in the value of its stock, other big players are far from as solid a backing and, like Evergrande, find themselves unable to repay a loan that is due.
In early July, the Shimao Group, which saw its sales fall 72% over the year in the first five months of the year, had to give up on repaying a loan worth more than $1 billion. In May, the Sunac Group ran into liquidity problems and announced a default.
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For two decades, the real estate industry has benefited from the steady rise in the standard of living of the population in a country where buying a property is often a prerequisite for getting married. But this desire to buy dried up in the 2010s.
The uncertainties associated with the Covid-19 crisis also helped dampen the enthusiasm of potential buyers. Beijing’s ‘zero Covid’ strategy is ‘burdening household consumption. In general, this is very costly for the whole economy,” notes Mary-Françoise Renard.
Adding to these difficulties is an emerging crisis of confidence: several hundred groups of Chinese homeowners who bought apartments without a plan have decided not to repay their mortgages. A way of putting pressure on developers when construction of a property is halted.
Although the authorities are taking control of the sector, the structural problems remain and will not go away, believes Mary-Françoise Renard, who cites “the massive indebtedness of the project promoters, risky investments and, above all, a very poor assessment of the risks of banks and banks local governments.
According to some analysts, the real estate sector could even slip into a vicious cycle that could increase consumer suspicion if Chinese growth falters. According to official figures released in July, the gross domestic product of the world’s second largest economy grew by just 0.4% over the year in the second quarter.