Chinese real estate giant Country Garden has suspended trading in over ten onshore bonds, leading to a sell-off in its Hong Kong-listed shares and impacting other stocks linked to China’s struggling property sector. The company, formerly China’s largest developer by sales, is reportedly considering debt restructuring following a warning of substantial losses in H1 2023. Taken in conjunction with the challenges faced by peer Evergrande which reported losses of over $81 billion in 2021 and 2022, the ongoing crisis in China’s real estate industry seems to be exacerbating.

The real estate sector’s woes stem from a liquidity crisis triggered by weakened buyer demand, hampering China’s post-pandemic economic recovery. While the government has yet to intervene and rescue distressed property firms, calls for increased support from Beijing are intensifying.

China’s economic rebound from COVID-19 has stumbled in recent months due to both domestic and international demand slumps. Data reveals China’s consumer prices experienced their first annual decline in over two years in July, compelling policymakers to consider additional measures to stabilize the economy. Despite such pledges, the lack of detailed plans has left investors disappointed.

Country Garden’s predicament has far-reaching implications, potentially affecting homebuyers and financial institutions. The company’s shares plummeted by 18% to an all-time low upon the suspension of its onshore bonds. This setback compounds the challenges faced by policymakers working to restore confidence in a faltering economy, with other issues, such as delayed payments on investment products, further eroding confidence.

China’s central bank’s unexpected move to lower key interest rates signals concerns about a worsening property market and weakened consumer spending. The People’s Bank of China reduced the one-year loan rate by 15 basis points to 2.5%, along with a 10-basis point cut in a short-term policy rate. This surprise action preceded disappointing economic data for July, revealing a broad decline in consumer spending, industrial output, and investment, accompanied by a rise in unemployment.

The National Bureau of Statistics acknowledges insufficient domestic demand and a need to strengthen the economic recovery’s foundation. These circumstances compelled China to pursue substantial and unusual rate cuts, given underperforming indicators despite rate reductions in June.

China’s economic uncertainty and debt problems are causing global concern, as evidenced by declining stocks and bonds. While policy makers’ rate cut aimed to reassure, it ultimately heightened anxieties about growth recovery efforts.

Source: TradingView

Investors are navigating challenges including a hawkish Federal Reserve, a slowdown in China, and issues in emerging markets, after a record-setting first half in stock markets.

The iShares MSCI China ETF has been trading in a steep down trend since February 2021 which at this juncture remains intact. The initial enthusiasm about China’s economic recovery waned and the market has been sliding since the onset of 2023. Selling pressure has intensified over the past two weeks and price action appears headed for a re-test of $42.58. A subsequent break below this level would have bearish implications in the short-term and could trigger an extension of the decline to the range of $36.00 and $38.00.

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