China Property Market Woes Strike Ping An

A residential and commercial complex under construction is seen in Nanning, in southern China's Guangxi region, on Nov. 9, 2021. STR/AFP via Getty Images

Exacerbating the spillover effects of China’s lingering property crisis, Ping An Trust (Ping An), a subsidiary of China’s Ping An Insurance, said yesterday it had to delay the repayment of a trust product, mainly because of the downturn in the Chinese real estate market.

In an official announcement posted on the Chinese social media site WeChat on April 10, a wealth management firm based in Shenzhen, China, revealed that it has postponed the payment on Funing 615, a product invested in a residential property project located in Xiamen, Fujian province. This project is owned by Chinese property developer Zhenro Properties Group.

The size of Funing 615 amounts to approximately 770 million yuan ($100 million). However, Ping An stated that it is actively working to expedite the project’s disposal through various measures. These efforts include monitoring the progress of the underlying project’s development, sales, and financial situation, initiating legal action against Zhenro, and facilitating the transfer and exit of equity held by Funing 615.

Established in 1996, Ping An had assets under management totaling 662.5 billion yuan ($91.5 billion) as of the end of last year, reflecting an increase of 110.5 billion yuan compared to the previous year.

This delay in repayment reflects broader strains within China’s financial market, which has been impacted by challenges in the property sector. The shadow banking sector, with an exposure of approximately $3 trillion, is particularly susceptible due to its substantial investments in real estate developers.

Earlier this year, Zhongzhi Enterprise Group, a prominent trust company in China, declared bankruptcy after one of its subsidiaries failed to fulfill a series of payments due in 2023.

Coming from a leading Chinese insurance group, the latest Ping An announcement could signify escalating concerns about contagion risks and the credit hazards associated with wealth management products offered by non-bank entities.

The ramifications of this delay have the potential to impact consumer confidence, particularly considering the significant exposure of many individual investors to these high-yielding trust products.

Trust Factor

Besides, the trust sector, which has served as a vital fundraising avenue for property developers, is encountering challenges. Some trusts have faced failure, while others have disinvested from property firms amidst regulatory initiatives aimed at overseeing the shadow banking sector.

The challenges facing China’s property sector are impacting the banking sector as well, reflected in non-performing loans at China’s big four banks, Industrial and Commercial Bank of China, Bank of China, China Construction Bank, and Agricultural Bank of China, that jumped 10.4 percent in 2023, from 1.117 trillion Chinese yuan, about $150 billion, in 2022 to 1.23 trillion yuan, about $170 billion.

This escalating pressure is in stark contrast to the optimistic outlook presented by major national banks in recent earnings conferences. Despite this, they have expressed confidence regarding demand trends and the economic trajectory, echoing the optimistic sentiments emphasized by the Chinese Communist Party leadership.

Zhenro has a history of defaulting on numerous debt obligations in recent years as well. The company’s latest annual report, released at the end of last month, disclosed that the troubled developer had failed to repay a total of 14.58 billion yuan ($2 billion) in principal and interest for specific senior notes, resulting in default on separate senior notes worth 13.37 billion yuan ($1.85 billion). Additionally, the company has accrued unpaid principal and interest of 9.45 billion yuan ($1.31 billion) on bank borrowings, along with other outstanding debts.

According to reports, Zhenro is burdened with 61.86 billion yuan ($8.55 billion) in interest-bearing borrowings and various outstanding bonds, with approximately 90 percent of this amount due within a year.

Ping An also faced challenges in 2023. The asset management division of Ping An reported a loss of 20.7 billion yuan ($2.86 billion), a significant swing from the previous year’s profit, amid broader difficulties in the real estate sector due to volatility in the Hong Kong and Chinese stock markets.

Following the loss, the company said it had to adopt cautious provisioning and revaluation strategies to alleviate the impact of the crisis on its assets valued at 663 billion yuan ($91.6 billion).

Spiraling Crisis

The debt crisis gripping China’s troubled property sector remains a significant obstacle to the country’s economic growth and has cast doubt on the future of major real estate developers like Evergrande Group and Country Garden.

The trust sector had traditionally served as a primary fundraising avenue for property developers seeking rapid expansion. However, since 2021, amidst a downturn in the real estate market, while some trusts have faced bankruptcy, others have divested their investments in property firms amid Beijing’s intensified efforts to regulate the shadow banking sector.

Meanwhile, in another blow to the wealth management sector, the Shanghai police announced on April 10, that they have initiated an investigation into local wealth management firm HHSC Capital. This investigation follows reports that the firm, in a letter to investors, declared insolvency and an inability to continue operations. Local media outlets reported that the firm failed to repay certain wealth management products last year.

Reuters contributed to this report.