Chinese real estate developers: Government assistance and relationships

In a dramatic turn of events in the Chinese property market, the country’s two biggest privately-controlled property developers, China Evergrande and Country Garden, are facing financial turmoil. Evergrande has already collapsed after defaulting on its debts, while Country Garden is on the brink of a similar fate with a winding-up order sought from a Hong Kong court.

With over $US540 billion in debt between them, these developers have no hope of paying off their creditors. The Chinese government seems to be allowing them to escape foreign creditors, but at the cost of going broke slowly within the Communist Party overseen economy.

On the other hand, state-controlled China Vanke, with smaller debt but better connections, is rallying together with its state-controlled owners to bail itself out, albeit with significant losses. The developer, part-owned by the local government of Shenzhen, recently secured a massive loan facility led by government-controlled banks.

The recent bailout deal saw Vanke selling a Shenzhen block of land at a significant loss, with its largest shareholder and a Shenzhen-based company jointly buying the plot. This move has seen Vanke’s shares jump more than 40% in May, signaling a potential turnaround for the embattled developer.

Despite facing challenges and downgrades from rating agencies, Vanke’s strategic partnerships and government support seem to be helping it weather the storm in the volatile Chinese property market. The unfolding saga of these property developers highlights the intricate web of government influence and connections that often dictate success or failure in China’s property sector.