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Trillions of Negative Cash Flow Cause Bond Defaults & Debt Crisis of Chinese Property Developers

China’s real estate bubble is about to burst | Full story | All You Need to Know.
On October 4, Chinese luxury real estate developer Fantasia Holdings fails to pay $206 million in debt due. On October 3, the $260 million dollar note from Jumbo Fortune Enterprises matured. The dollar note is guaranteed by China Evergrande Group and its unit Tianji Holding Ltd.
On October 4, China Evergrande and Evergrande Property announced the temporary suspension of trading without prior warning before the opening of the Hong Kong stock market.
Evergrande has defaulted on the maturity interest of two US dollar bonds in late September, involving amounts of US$83.5 million and US$47.5 million respectively.
Of course, these are not the only ones that face such challenges.
According to the “Times Weekly” report, as of September 5 this year, a total of 274 real estate companies in mainland China have issued bankruptcy announcements. In 2020, 408 real estate companies issued bankruptcy announcements.
The reason for the bankruptcy of mainland real estate companies is generally because of the rupture of the capital chain, resulting in debt defaults. In August last year, the Chinese authorities set “three red lines” for real estate companies and restricted their financing according to the number of red lines they stepped on. Secondly, at the end of last year, the authorities also set the ratio of bank loans to developers’ own funds for real estate projects; Furthermore, since the beginning of this year, the CCP has continuously upgraded its “control” on real estate industry, controlling the housing market from the demand side, causing the rapid cooling of the market. Thus, the desire of real estate companies to speed up the sale of properties to collect the money has been dashed. The financing of real estate companies is restricted, the method of lending the new to repay the old is also blocked, and properties are generally not easy to sell. Therefore, many real estate companies’ capital chains were broken.
Most of China’s real estate companies quickly expand up through a high borrowing and high turnover approach, their leverage ratios are relatively high. For example, the real estate company that ranked first in sales in September- Country Garden, starts project design immediately once it acquires land plots, opens for pre-sale within 4 months, achieves positive cash flow in the 5th month, and starts to rush into a new land acquisition in the 6th month. This kind of high turnover becomes the way to maximize the interests of real estate enterprises.
Under this business philosophy, the net operating cash flow of real estate companies has always been negative as a whole. In 2014, the net cash flow of all real estate companies was as high as negative 884 Billion USD. Since then, China has been forced to start destocking to improve cash flow for the real estate industry. By 2018, the net cash flow was negative 590 billion USD. By 2020, the net cash flow has deteriorated again and reached a negative 714 billion. From January to August this year, the number is negative 512 billion, and it is expected to exceed negative 776 billion USD for the entire year.
Driven by greed, real estate companies do everything they can to expand rapidly, and their cash flow has always been negative. How can these companies not collapse?
#ChinaRealEstate#BondDefault#DebtCrisis#ChinaEconomy#BillDue#CapitalMarket#RealEsateBubble#CashFlow#TrillionDollar
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Written by China Observer

Comments

  1. CHINA JUST CAME OUT SAYING THY WILL NO LONGER PAY ANY LOANS OR GRANTS TO ANY OYTHER CONTRY AND HAS DEFALTED ON ANY AND ALL LONES AND GRANTS …. BECAUSE IT IS IN CHINA AND NO ONE OTHER THAN A C.C.P. MEMBER MAY OWN LAND THAT MEANS ANY ONE THAT IS FIRST CHINESE AND PART OPF THE C.C.P. WIOLL EVER GET THE MONEY BACK ….

  2. China's high gdp growth% over the last 20 years is a mirage just like their Ghost
    Their Real Economy is no where near $14T, 30% which is RE, just a gigantic Ponzi scheme
    Their horrible Democraphics, Energy ,Water, Food, will only exasperate the RE Crash.
    Then there is the total corruption of the Government complete with assassinations.

    When millions of people realize they are broke and they cannot eat or drink, freeze
    in the dark this winter , what will they do?

  3. I think this happens when a countries leaders are not experienced in business but are affecting their countries business. This is why Trump was the best candidate. Slow Joe just wants to steal more and could care less about the fate of the citizens.

  4. CHINA IS IN FAILURE MODE.
    THIS TREND WILL CONTINUE AND EXPAND. ASIAN COUNTRY'S ALWAYS FAIL DUE TO BAD MANAGEMENT.
    LOOK AT PAST HISTORY. CHINA, JAPAN, AND THE REST. DO NOT INVEST IN THESE SLOPPY ECONOMY'S.
    ASIANS ARE NOTORIOUS FOR FAILURE. IT'S A GENETIC DEFAULT. AGAIN, CHECK THE HISTORY.

  5. Make sure your 420, IRA and stocks are divested from this. . . Blackrock and a lot of us assets have been feeding this for awhile.
    When it crashes, it will make 2007 seem like a picnic

  6. China is not a third wolrd country anymore it’s status of that needs to be taken away an those tax breaks they get. Because of it. O breaks for china right up there with Russia USA only difference with USA an them we r a free nation not communist

  7. Hahhhah so its a dollar bond problem……the USA will have to pick up the bill…….i believed the CCP bank rolled all Chinese companies not that USA investors actually invest in them….

  8. Châu chấu, những dòng sông nước chảy như máu, bệnh dịch, hạn han, lủ lụt, các điềm lạ, động đất….. là báo hiệu tận thế
    Phản Kito là ĐGH
    Sắp tận thế lúc 15 giờ

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