Country Garden just dodged a default but China's property-debt distress continues

• Leading Chinese developer Country Garden avoided a debt-default last week with an 11th-hour coupon payment.
• But this may have provided only a temporary relief for the Asian nation's ailing property sector.

Despite one of China's largest developers dodging a debt default with a last-gasp payment this month, the nation's ailing property sector teeters on a knife-edge.

Country Garden Holdings managed to pay interest totaling $22.5 million last Monday, which offered a temporary reprieve to the embattled industry. The sector

But the real-estate crisis in the Asian nation shows little sign of easing, with policymakers in Beijing holding back from extending large-scale policy support for the industry. As many as 53 Chinese developers collapsed in recent years as the once-booming sector faced mounting stress, with demand slowing and developers struggling to service their enormous debt burdens.

Investment in the sector fell 7.9% in the first half of this year, official data show. The industry as a whole shrank last quarter, resuming a contracting trend in place since 2021.

Two-thirds of Chinese developers with the most outstanding offshore borrowings have defaulted on debt payments at some point over the last two and a half years.

As many as 34 of the 50 largest developers measured by outstanding dollar bonds have missed payments on their debt, according to data compiled by Bloomberg.

Equally worrying, the remaining 16 firms – which includes Country Garden – face a combined $1.48 billion of debt payments coming due for either interest or principal by the end of this month.

"Historically, external creditors have really not done well in restructurings coming out of China," Edward Al-Hussainy, head of EM fixed income at Columbia Threadneedle, told Reuters. His firm holds some Country Garden bonds.

"The fact that they paid this coupon tells me that there's some conversation happening at the company management level and very likely between company management and government at this stage, that liquidity, or some form of liquidity support, is becoming more likely," he said, referring to Country Garden's recent coupon payment.

The market for Chinese developers' dollar-denominated bonds has lost a staggering 87% of value over the past two years. The rout has wiped out $135.5 billion from $154.9 billion of outstanding notes, according to an analysis by Debtwire.

"The average price on the notes is now only a tad above 11 cents on the dollar," Debtwire co-managing editor Chaim Estulin wrote in a recent LinkedIn post.

China's faltering property sector has fueled concerns of a potential "Lehman moment" that could drag on the broader economy, which is also dealing with a laundry list of related issues such as youth unemployment as well as weakening consumption and manufacturing.