Country Garden’s Lapse

When embattled property developer Country Garden missed a coupon payment on a $500 million bond maturing in September 2025, it reignited fears over the solvency of China’s heavily indebted property sector.

Country Garden was due to make a $15.4 million interest payment at the end of a grace period, which expired on October 18. Earlier in the month, Country Garden warned it could default on debt amid plunging property sales.

According to Dutch multinational bank ING, citing reports from Beijing-based Caixin, the missed payment could set up a cross-default on other Country Garden debt. Country Garden has out-standing bonds totaling CNY104 billion, of which CNY78 billion—roughly $10.5 billion—are offshore.

The offshore bonds have been trading at only a few cents on the dollar, suggesting direct realized losses stemming from the default could be relatively minor. But it is the perception of a beleaguered property market that worries foreign investors. Country Garden was once China’s largest developer by sales but has been struggling to fend off default.

Its fall from grace rekindles memories of Evergrande’s default in 2021. Country Garden has around $200 billion in total liabilities; Evergrande had approximately $340 billion. The latter sent shockwaves through the property sector and faces a winding up hearing scheduled for the end of October.

Meanwhile, ratings agency Moody’s maintains an unsecured rating of C for Country Garden and may downgrade if negotiations fail.

Besides the property market, there are signs of recovery in China’s wider economy. Third-quarter data showed GDP up 1.3% from a revised 0.5% in the second quarter. And though the government has so far been reluctant to bail out the property sector, there are signs of a further opening of the world’s second-largest economy.

At the recent Belt & Road Forum, President Xi Jinping announced the removal of all restrictions on manufacturing, and more free trade agreements with countries. But it is questionable how long the government can remain aloof from the property sector, which constitutes around a quarter of overall economic activity. Analysts say that as a barometer of household well-being, a dormant property sector heaps pressure on policymakers to grant concessions to restore confidence in a vital sector.