‘Harmful’ collapse of Chinese agency value £189bn poses danger to UK financial system

The potential collapse of China’s largest actual property developer poses a hazard to the worldwide financial system because the restoration of the world’s second-largest financial system fails to stay as much as expectations, consultants have mentioned.

It emerged on Monday that Country Garden, China’s largest personal actual property developer, desires to delay cost on a personal onshore bond for the primary time.

It is the newest signal of a money crunch in China’s property sector and piles stress on the Chinese authorities to step in.

Geopolitics, geoeconomics skilled and broadcaster Dr Roger Gewolb advised Express.co.uk the scenario appears “pretty dangerous”.

He mentioned it raises two points: the potential fallout for the remainder of the world from Country Garden going bust and what the Chinese authorities will do.

Dr Gewolb mentioned: “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 – lots of these buyers will attempt to extract their cash from these 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.

Dr Gewolb said: “I feel we’re most likely not getting ready to a world financial collapse. It’s not going to be a direct contagion in the way in which the world monetary disaster 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 skilled and founding father of the Adamis Principle, Patrick Reid, advised Express.co.uk China has reported some “bad” financial information in current weeks.

He mentioned: “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 do not know what pebble will trigger the avalanche, however there was some very worrying information releases popping out of China within the final 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 manufacturing facility to the world, if China slows down, we decelerate. China had actually harsh Covid restrictions. When they had been lifted there was euphoria concerning the Chinese financial system. 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 chilly.”

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 usually include a contented ending for shares”.

He added: “News China property large Country Garden had missed bond funds because it racked up huge losses was all the time prone to immediate promoting in Asian markets and that fed by way of 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 regular catalogue of names with Chinese ties have been underneath the pump together with 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.”

Dr Gewolb mentioned the FTSE 100’S lack of energy on Monday was to be anticipated given Country Garden’s scenario, including: “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’s making lots of people nervous. I feel the jitters will ease. It all is determined by what the [Chinese] authorities 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 financial system, one factor is certain it’s going to take some time till all of this Country Garden stuff performs 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 shortage of demand in China may have penalties for firms that promote items and providers into China, that means that we’re prone to see a weak restoration, or on the very least a interval 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.”