China property giant Country Garden warns of £6bn loss

One of China’s biggest property developers has warned it could rack up a half-year loss of up to £6billion.

Country Garden’s revelation fuelled fears of a slump in the world’s second-largest economy as its shares tumbled on the Hong Kong Stock Exchange.

The business, which is run by the family of billionaire real estate mogul Yang Guoqiang, warned losses could be between £4.9billion and £6billion for the first six months of 2023 – a massive swing from a £209m profit last year.

Slump: Country Garden warned losses could be between £4.9billion and £6billion for the first six months of 2023

Country Garden also revealed it had set up a task force headed by chairman Yang Huiyan to find ways to turn the business around.

But the profit warning sparked fears the festering crisis in China’s debt-fuelled property sector could once again erupt with companies defaulting on loan repayments amid sliding demand and economic weakness.

In late 2021 Evergrande, then China’s largest property developer, defaulted on its massive £236billion debt pile,.

This sent ripples across international markets amid worries the company’s collapse could set off a chain reaction and a global financial crisis. Last month, Evergrande finally reported long-delayed financial results for 2021 and 2022, revealing that over the two-year period it had lost £64billion.

Some have warned a default at Country Garden, which has four times as many development projects as Evergrande, could hit the Chinese housing market even harder.

The financial problems of the property sector, which accounts for a hefty chunk of China’s gross domestic product (GDP), come amid growing signs the country’s economy is slowing down as an expected boom following the relaxation of pandemic restrictions failed to materialise.

On Wednesday, official figures showed China had slipped into deflation with consumer prices falling 0.3 per cent year-on-year last month, down from zero in June and the first drop since February 2021.

While the decline presents the opposite situation faced by countries such as the UK and US, which are struggling with high inflation, it fuelled fears that China faces slipping into lost decades of stagnant prices and wages, as happened in Japan following the collapse of a real estate bubble in 1991.

It followed trade data that showed sharp falls in Chinese imports and exports to its major markets. This was due to falling domestic demand and lower consumption from abroad as Western consumers tightened their belts during the cost of living crisis.

To make matters worse, the country is also grappling with sky-high rates of youth unemployment. Joblessness among the young hit a record of 21.3 per cent in June – up from 20.8 per cent in May – as graduates struggle to find jobs in China’s hyper-competitive labour market.