J.P. Morgan cautioned on Monday that turmoil at China's largest private developer, Country Garden, may trigger a "vicious cycle" of financial stress on the country's real estate investment trusts (REITs).The brokerage raised concerns about Chinese conglomerate Zhongzhi Enterprise Group after two Chinese listed businesses complained about not receiving payment on maturing investment products from its …
J.P. Morgan cautioned on Monday that turmoil at China’s largest private developer, Country Garden, may trigger a “vicious cycle” of financial stress on the country’s real estate investment trusts (REITs).
The brokerage raised concerns about Chinese conglomerate Zhongzhi Enterprise Group after two Chinese listed businesses complained about not receiving payment on maturing investment products from its unit, Zhongrong International Trust.
If REITs fail to make debt payments, they will have to delve into their profits, putting approximately 2.8 trillion yuan ($385.78 billion) in assets under control at risk.
These new concerns emerge as Country Garden attempted for the first time to postpone payment on a private onshore bond and suspended trading in 11 onshore bonds.
“Unlike banks, which have holding power and can roll over credit to wait for an eventual resolution,” J.P.Morgan analysts led by Katherine Lei wrote in a note.
“The default events may lead to a chain reaction on developer financing, adding stress to POE (privately owned enterprise) developers and their creditors.”
Since late 2021, when China Evergrande Group went bankrupt, the Chinese property market has been dealing with a liquidity crisis.
Rising trust defaults will directly reduce economic growth by 0.3-0.4 percentage points, according to J.P.Morgan.
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