Checkaco Consumer Money News – second Chinese construction giant receives winding-up petition which could cause a ‘Lehman Brothers’ moment creating a second ‘2008 Credit Crunch’

Checkaco Consumer Money News: second Chinese construction giant receives winding-up petition which could cause a ‘Lehman Brothers’ moment creating a second ‘2008 Credit Crunch’

By Harry Mottram: China is the largest economy in the world after the USA but the two largest property and construction firms are in free fall. Country Gardens and Evergrande – very un Chinese sounding names – are in trouble which means the Chinese economy is in trouble and its ripples will affect the UK. Country Garden has been hit by a winding-up petition by Ever Credit Ltd a creditor in Hong Kong for non-payment of a loan worth HK$1.6bn ($204.5m; £161.2m).

In January mega giant China Evergrande was ordered to be liquidated by a Hong Kong court after it failed to pay bills, defaulted on repayments and has halted hundreds of building projects. With customers having paid deposits of homes that haven’t been built, banks having seen loans unpaid and suppliers left high and dry the two firms have collectively cost the Chinese economy some of the country’s expected growth. Some economists think the Communist nation’s economy is actually in recession – but the one party state manipulates the figures to pretend it is still enjoying annual growth. Judging by the thousands of Chinese immigrants trying to gain entry to the United States there are signs the worst could be true.

A recession in China would have international consequences with the first being a withdrawing of investments abroad. Already both Country Gardens and Evergrande have begun a fire sale of their properties in London at knocked down prices. Both firms are hundreds of billions in debt and commentators have their doubts that debt restructuring negotiations are likely to work.

Ian Carrotte of Checkaco said it was wise to be cautious in dealing with any Chinese company at present and to insist of sticking to their credit terms and ideally having cash up front with an order. He said: “There are constant reports from China that Country Gardens have failed to pay construction workers and suppliers on their new sites. It is the first sign of trouble and this has been going on for months. It points to the fact that if one creditor has pressed for a winding up petition then others must follow and we could see a collapse – assuming the Communist Government decides to step in – and that looks unlikely. The winding-up petition could cause a ‘Lehman Brothers’ moment creating a second ‘2008 Credit Crunch’."

Photo: credit to Reuters.

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