The beginning of the bubble burst

There are gloomy outlooks that it could evolve to a Chinese version of the Lehman Brothers crisis.

PARK SEONG-HUNThe author is a Beijing correspondent of the JoongAng Ilbo. Biguiyuan, an unfamiliar word even to the Beijing correspondent, has recently appeared in the news. It refers to Country Garden, the fifth largest real estate developer in China. But the reality is the opposite of the seemingly peaceful name. It was recently revealed that Country Garden failed to pay back 29.6 billion won ($22 million) in corporate bond maturity interest, and there are rumors of a possible bankruptcy.

It could put off the urgent fire by selling assets, but not being able to pay back the interests suggests its serious financial trouble. Trading of 11 types of corporate bonds was suspended in the Shanghai Stock Exchange.

Moreover, there is a concern that real estate trust companies that lent money to the real estate developer could go bankrupt consequently. There are gloomy outlooks that it could evolve to a Chinese version of the Lehman Brothers crisis.

On Tuesday, I visited an apartment the real estate developer was building in Beijing’s Tongzhou District. I could tell the construction site from afar. All the tower cranes were stopped. The surrounding area was dead quiet, and the construction site doors were closed.

Security guards who were running to us told us to leave the construction site. Looking around, I spotted an unexpected scene. “Let’s Protect Our Rights — Day 94!” was written on a red banner next to a van. A large tent was set up behind.

The buyers of the Country Garden units were protesting the suspension of the construction. It was not reported on Chinese media, but the developer’s financial trouble was already affecting the Chinese people. The protesters remained in place in the heavy rain earlier this month.

I told them that I was a Korean reporter and asked if I could cover their story. They were thankful for Korea’s attention on Country Garden and voluntarily agreed to be interviewed. It was almost my first time as a correspondent to meet Chinese people who were actively willing to speak to the media at a long-term protest site.

They said that the company was not keeping its promises and was not responding to their inquiries on construction delays and any plans to deal with apparent devaluation of the assets. “Local government officials and public security officers came and told us to return without worrying about it as the company agreed to handle the situation. But we cannot leave this site, because the company does not provide any clear answer. We will continue to protest to protect our rights.”

The sentiment at the scene was at the bottom. A buyer said, “Country Garden only tells good things to the Chinese media, but we cannot believe any of it.” Another protester said, “There are at least 20,000 victims.” The developer is expected to have a net loss of 55 billion yuan ($7.5 billion) in the first half. I wondered how many more sites like this are there. The real estate slump is hitting China critically.