Chinese Yuan (CNY) Risks Major Losses Versus Dollar Amid Heightening Housing Crisis

Key Takeaways:

• Chinese Yuan near 15-year low against the US dollar.
• Construction giant Country Garden could fall prey to the housing crisis.
• Experts believe the implications for the economy would be severe.

YEREVAN (CoinChapter.com) — Chinese Yuan (CNY) approached its 15-year low exchange rate against the US dollar, trading at $0.138. Moreover, the currency is primed for more losses, with a target at the previous low of $0.136.

Notably, the raging housing crisis continues, threatening the second-largest economy globally and, by extension, the CNY/USD exchange rate.

Country Garden is Worse than Evergrande

Country Garden Holdings Co., formerly the nation’s largest private-sector developer by sales, might fall prey to the continuous housing crisis in China. The builder left investors in the dark after dollar bondholders said they had not received effective coupon payments due Monday.

The firm’s total liabilities at the end of last year stood at 1.4 trillion Yuan, or nearly $200 billion. If Country Garden fails to repay within a 30-day grace period, it will be on course for a public default.

In detail, the construction giant built over 3,000 housing projects, with 60% of its projects located in so-called Tier 3 and Tier 4 cities, which usually have a smaller population and weaker housing demand.

Country Garden employed approximately 70,000 people at the end of last year, and the company’s sheer size withstood the Evergrande storm in 2022. But tumbling industry home sales and soaring refinancing costs are threatening that streak.

Bloomberg Intelligence analyst Kristy Hung commented on the implications for the housing market if Country Garden slumps.

Any default would impact China’s housing market more than Evergrande’s collapse as Country Garden has four times as many projects. Debt crisis at [the company] will have a far-reaching impact on China’s housing market sentiment and could significantly weaken buyer confidence in solvent private developers.

said the expert.

If Country Garden Fails, Yuan Will Follow

The housing market accounts for over 30% of the Chinese economy. Meanwhile, China’s Communist Party’s (CCP) housing policies fail to produce a lasting rebound in the sector. Some experts rang warning bells in July 2022, concerned that CCP is sitting on a “ticking debt bomb” that could erupt soon enough.

The International Monetary Fund (IMF) agreed that the crisis is far from over. In a Q1 briefing, Thomas Helbling, deputy director of the IMF’s Asia Pacific Department, said that the “authorities’ recent policy measures are welcome, but in our view, additional action will be needed to end the real estate crisis.”

If you look at the measures, a lot of them address financing issues for the developers that are still in relatively good financial health, so that will help. But the problems of the property developers’ facing severe financial difficulties are not yet addressed.

he said.

“The issue of the large stock of unfinished housing more broadly is not yet addressed,” added Helbing. Moreover, the mentioned “large stock of unfinished housing” is often called ‘ghost cities,’ with hundreds of empty housing complexes which can remain vacant for years.

The Chinese Yuan faces a real threat for all the reasons mentioned above. The housing bubble will burst if Country Garden falls, sending Yuan into another downward spiral.