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China’s property crisis deepens as trust firm defaults, home prices drop

The fallout from China’s property sector continues to intensify, raising alarm bells about the potential ripple effects on the broader economy.

Zhongrong International Trust Co., a prominent trust firm with significant real estate investments, has reportedly missed payments on multiple investment products since last month, according to a senior official. This new development, coupled with a drop in new home prices for the first time this year, casts a shadow over the country’s economic prospects.

While national home prices dipped by 0.2% month-on-month and 0.1% year-on-year, per National Bureau of Statistics data, smaller cities have felt a sharper downturn, with average new home prices in the smallest 35 cities surveyed declining year-on-year for the 17th consecutive month.

The fragile state of the property market, which historically represents roughly a quarter of China’s economy, presents a major concern. Major global banks, including Barclays, have revised China’s 2023 growth forecasts downward in light of recent data. While Beijing has so far staved off the repercussions of a property debt squeeze impacting its $57 trillion financial industry, the fresh wave of defaults sparks fears of widespread economic fallout. The persistent property downturn, alongside the cumulative effects of strict COVID-19 measures over the past three years, has led experts to predict further declines in home prices and sales.