Once the beneficiary of China’s real estate boom, Lan Mingqiang is now an unwitting victim of its collapse.
Due to financial difficulties at a real estate company, Country Garden, he is unable to pay the school fees for his son, who is in seventh grade. Country Garden owes its company, which makes fences and billboards on construction sites, $21,000. With Country Garden just days away from defaulting, that money is more out of reach than ever.
“Real estate is difficult these days,” Mr. Lan said. He recently went out of business, leaving his family in the southern city of Chongqing to try and make a living selling snacks to tourists in Zhengzhou, a city in northern China.
Mr. Lan is just one of many people waiting to be paid by Chinese real estate developers. The housing market was once the country’s largest source of jobs, but it has also enriched local government and created a storehouse of wealth for households. But regulators’ efforts to deflate a housing bubble and China’s slowing economy have accelerated a crisis that is spreading to all walks of life.
Small businesses and workers who benefited from decades of real estate boom are no longer being paid. While low on developers’ payback priority list, the group represents an important part of the housing ecosystem and includes painters, cement makers and contractors, as well as real estate agents and companies that have set up sales offices.
According to the market research company Gavekal Research, the suppliers are waiting for payments totaling at least 390 billion US dollars. And that’s a conservative estimate; The number is probably larger.
People want their money and act. Lawsuits and complaints to the local authorities are piling up. Construction workers hang protest banners on empty, chained and locked construction sites. “It’s a shame to delay wages,” reads a sign. “Country Garden, pay back my hard-earned money,” read another.
Liu Yaonan, a real estate agent in Guangdong province, isn’t very confident Country Garden will ever pay. He made just three-quarters of his usual commission last year and says he’s still owed nearly $8,000.
He said he kept calling Country Garden’s complaints hotline, but the person who answered did nothing but acknowledge his complaint.
“It’s unfair to real estate agencies because once a developer faces a debt crisis, the system protects buyers first,” Mr. Liu said. “Other material dealers, agents and engineers cannot be paid as a matter of principle.”
The frenetic activity is adding pressure on the Chinese economy, although confidence has already weakened. Years of lockdowns and other Covid prevention measures have weighed on consumers who are spending less. Companies have withdrawn when it comes to hiring employees. Fewer and fewer people are buying houses.
More than any other company, the sudden reversal of fortunes at Country Garden illustrates the severity of this economic strain. Just a year ago it was China’s top real estate company by revenue and one of the few private companies that suppliers and lenders could rely on to pay their bills.
But a drop in sales over the last six months has pushed it to the sidelines and it broke hands in August.
Country Garden missed two small interest payments on bonds, bringing the company to the brink of insolvency. If it doesn’t make those payments by early September, when a deadline for interest payments expires, it will join a long list of private companies that have defaulted. It was also revealed that the company may have lost as much as $7.6 billion in the first six months of the year.
Country Garden’s swing from success to near failure fuels fears that an abrupt end is on the horizon for China’s developers, many of whom have been under pressure for several years as regulators have tried to curtail their bank funding.
Some developers were initially able to continue even if they failed to meet their commitments. They found other ways to compensate suppliers. China Evergrande, the giant that defaulted on hundreds of billions of dollars in debt in 2021, paid back some of its suppliers with unfinished homes instead of cash, on the theory the suppliers could sell them to get what was owed to them reclaim money.
Today even bartering is no longer an option.
“Those apartments are gone; We can’t get them,” said Han Tao, manager of a landscaping company that owes $1.4 million from developers. Apartments wouldn’t have been that useful for Mr. Han anyway; Nobody is buying them at the moment.
After years of building a thriving business supplying cherry trees and acacia trees for large real estate projects, he and his colleagues are setting humbler goals. One change: they only accept an order if payment is made in advance.
“We keep our business small,” he said.
On China’s social media platform Weibo, construction workers complain about missed paychecks. Some post images of court documents from court cases. Others provide records of the complaints they have lodged with local authorities. Many express a sense of desperation and frustration.
Liao Hongmei fought for years to get $690,000 from China Evergrande. She even won. But Evergrande still hasn’t paid them and, in their view, companies their size will likely never get the money they deserve.
“We small suppliers have no say,” said Ms. Liao, who founded a successful company a decade ago, providing Evergrande with marketing and decoration services for its sales offices in Jiangsu province.
Flashy sales offices have long played a key role in raising the funds real estate developers needed to continue growing. Most companies sold homes before a project was complete, with clients paying in advance.
In the sales offices, agents dressed in suits usually woo potential buyers with bells and whistles. A miniature model of the condominium gives an idea of what the complex will look like once completed. A tour of a model apartment, which is often lavishly decorated, conveys a lifestyle to them.
According to Ms. Liao, sometime in 2016, Evergrande began issuing ious — known in dry financial lingo as Commercial Acceptance Bills — for payment within six months. Then, in 2017, the annual payments began. The time it took Ms. Liao to receive her salary became longer and longer. But the money was still pouring in, she said, until the company defaulted on its debt in 2021.
Now Ms. Liao’s company is on the brink of bankruptcy. She filed a lawsuit against Evergrande and won, but has no way of getting her money as the government is overseeing the company’s restructuring and its first priority is to ensure that Evergrande completes the homes it sells. Last year it said it had completed 300,000 and there are still 720,000 more to be completed, according to results for 2022.
On August 17, Evergrande filed for bankruptcy protection and announced it was close to settling with some of its largest creditors. Trading in its shares resumed on Monday after a 17-month suspension in Hong Kong. The stock fell 79 percent.
But for small business owners like Ms. Liao, who is at the back of a long line of banks, creditors and corporations looking for money, there isn’t much hope. Many of her colleagues who have filed similar lawsuits have given up, she said. Ms Liao said she hopes that once Evergrande has completed the apartments it owes to homebuyers, there will be something left for people like her.
“A little money,” Ms. Liao said, was her only request. “But it doesn’t look like that’s going to happen.”
Li You and Zixu Wang contributed to the research.