The case

​On 29 January, a Hong Kong court ruled on the liquidation of Chinese property company Evergrande Group, which has been financing housing estates and new urban areas in China that have stood empty for years and whose pictures have been going around the world as new ghost towns.

Evergrande, “forever big”, defaulted on payments in 2021, triggering a property crisis in China’s economy. When the firm went bankrupt last June, its debts totalled at USD 333 billion.

This case shows just how battered the Chinese property market is. This year, Chinese construction companies will have to refinance USD 100 billion in debts with banks and USD 650 billion with local governments. For decades, China’s robust growth has been driven by a property boom, fuelled by a growing population and rapid urbanisation. In the past, the sector accounted for up to 30 % of the gross national product, and more than two thirds of Chinese household assets are tied up in property. The property sector got into trouble when the government cracked down on excessive borrowing for construction in 2020 to cool the property bubble, which obviously came too late. Since then, dozens of Chinese construction companies have defaulted on their debts. Evergrandehas become the poster child of China’s property crisis and showcases that nothing is big forever.

Country Garden, the largest property group in China, is also debt-ridden with its debts amounting to around USD 150 billion. The liquidation of Evergrande already has serious consequences for Chinese banks and construction companies. If Country Garden also goes bankrupt, the Chinese economy will slump even more.

Source: Swiss press

The commentary

​According to experts, Swiss banks are scarcely active in the Chinese property market, though one must hasten to add that the banking business with wealthy private clients in Asia could be affected as they could lose money themselves or get into payment difficulties. This harbours risks of loss for Swiss banks, who must also expect these customers to hold back on their transactions, which, in turn, could reduce the banks’ earnings. Further, the demand and turnover of Swiss industrial companies could also be in turmoil by the current crisis on the Chinese market. Switzerland has currently invested around USD 30 billion in China, while China’s investments in Switzerland amounts to around USD 21 billion, according to Rudolf Minsch from Economiesuisse in January 2024.