Dangerous collapse of Chinese firm worth £189bn poses risk to UK economy

The potential collapse of China’s largest real estate developer poses a danger to the global economy as the recovery of the world’s second-largest economy fails to live up to expectations, experts have said.

It emerged on Monday that Country Garden, China’s largest private real estate developer, wants to delay payment on a private onshore bond for the first time.

It is the latest sign of a cash crunch in China’s property sector and piles pressure on the Chinese government to step in.

Geopolitics, geoeconomics expert and broadcaster Dr Roger Gewolb told Express.co.uk the situation looks “pretty dangerous”.

He said it raises two issues: the possible fallout for the rest of the world from Country Garden going bust and what the Chinese government will do.

Dr Gewolb said: “If there’s contagion, I think it will be more indirect so for example the Chinese will dump goods all over the world to generate cash.

“[The Chinese] are invested in Latin America, Asia, the UK – many of those investors will try to extract their money from those investments.”

The geopolitical and geoeconomics expert added that comparisons with the global financial crash caused by the subprime mortgage market crisis of 2007-08 should be taken with a pinch of salt.

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Dr Gewolb said: “I think we are probably not on the brink of a global economic collapse. It’s not going to be a direct contagion in the way the world financial crisis was.

“This is going to be relatively localised. The effects we see will be Chinese goods dumped and a move to cheapen prices.”

He added: “The Chinese economy is a closed economy. The question is how far [the Chinese government] will let it go. Will they let it fail? Will they let international investors and bond holders lose their money?”

Currency expert and founder of the Adamis Principle, Patrick Reid, told Express.co.uk China has reported some “bad” economic data in recent weeks.

He said: “China is not immune to bad data, especially in the real estate sector. I think this is a massive problem that the Chinese government and PBOC (People’s Bank of China) are trying to rectify, but it is not going to be entirely responsible for a slowdown in the UK economy.

“We don’t know what pebble will cause the avalanche, but there has been some very worrying data releases coming out of China in the last three months.”

Mr Reid described the PBOC’s easing of its medium-term loan facility as a “sticking plaster” which would see corporate bonds hit as investors become risk averse, especially those with holdings in emerging markets and real estate.

He added: “As a factory to the world, if China slows down, we slow down. China had really harsh Covid restrictions. When they were lifted there was euphoria about the Chinese economy. That has been deflated. The steam has come out of that optimism.”

A slowdown in China will hit countries around the world, including the US, which imports a lot of Chinese goods, and Australia which trades iron ore with the Asian giant.

Mr Reid said: “When China sneezes, we catch a cold.”

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UK stock markets slipped into the red on Monday due to renewed concerns over the health of the world’s second-biggest economy. News Country Garden was on shaky ground weighed on global investor sentiment.

Russ Mould, investment director at AJ Bell, said a crisis in the Chinese real estate sector is a story the market has heard before and “not one which has typically come with a happy ending for stocks”.

He added: “News China property giant Country Garden had missed bond payments as it racked up big losses was always likely to prompt selling in Asian markets and that fed through to the European open yesterday morning.

“This latest calamity is reflective of a recovery which has not lived up to expectations since the world’s second largest economy ditched zero-Covid measures at the end of last year.

“The usual catalogue of names with Chinese ties have been under the pump including Burberry, Standard Chartered and Prudential.

“The one silver lining for the West may be a deflationary impact from China’s woes which helps in the battle against inflation.”

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Dr Gewolb said the FTSE 100’S loss of strength on Monday was to be expected given Country Garden’s situation, adding: “I’m sure that if Country Garden goes, then there will be an awful lot of jitters around… No one is going to say this is a world financial crisis as it hasn’t hit the world banking system.

“But it is making a lot of people nervous. I think the jitters will ease. It all depends on what the [Chinese] government does.”

He added Country Garden’s predicament and its wider impact underscored China’s power over the global economy, but also the mystery it shrouds its economy in as it seeks to build its economic empire.

Michael Hewson, Chief Market Analyst for CMC Markets, told Express.co.uk: “Whatever your views on the Chinese economy, one thing is sure it’s going to take a while until all of this Country Garden stuff plays out.

“There are wider problems facing the Chinese economy, including the property sector. A lack of demand and while the authorities have cut rates this morning to make credit cheaper, it won’t really help given that business doesn’t want to take out new credit against such a challenging backdrop.

“As such the lack of demand in China will have consequences for companies that sell goods and services into China, meaning that we are likely to see a weak recovery, or at the very least a period of stagnation.

“This will be as true for the economy here in the UK as well as Europe with the only upside of a China slowdown is that oil prices might find it difficult to rally much further.”

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