Finimize - 🪒 China's close shave

What’s going on here?

One of China’s biggest developers has avoided defaulting on its debt… for now.

What does this mean?

Country Garden was once seen as one of China’s safest developers, but even a firm with a reassuringly rustic name can experience nasty twists of fate. And it’s not too hard to see why: home sales have been crumbling (in August they were down a staggering 72%) and homebuyer confidence is in a serious rut. That super weak market has left the firm struggling to make interest payments on its bonds – missing an initial deadline in early August, before rustling up the funds just in time to avoid defaulting this week. For investors, already biting their nails over China’s wobbly property sector, that move was probably a tad too close for comfort.

Why should I care?

Zooming in: Super-size shockwaves.

Don’t relax just yet. Country Garden’s still neck-deep in debt, to the tune of almost $200 billion. And here’s the kicker: a lot of the firm’s projects are in lower-tier cities, places with smaller crowds and lukewarm housing demand – areas, in short, that aren’t likely to benefit very much from any stimulus measure magic. And if things do go south, Country Garden’s heft means the fallout will be equally weighty. After all, Evergrande’s 2021 default was a shocker, and Country Garden oversees four times the number of property developments.

The bigger picture: Too little, too late.

The Chinese government has been trying to stabilize the crucial property sector lately, lowering minimum interest rates for first-time homebuyers in cities like Beijing and Shanghai last week. But analysts aren’t convinced these moves are enough: after all, big players, including Country Garden, are facing $8 billion in bond payments in the next six months, providing plenty of potential stumbling blocks for the industry.

What’s going on here?

UK consumer spending data painted a rosy picture for August – but scratch the surface and some darker spots appear.

What does this mean?

Official data isn’t due out until later this month, but the British Retail Consortium’s figures normally work as a kind of crystal ball for retail sales. And if these numbers are right, then this August was actually a bit of a party. Sales shot up by 4.1% from the same time last year, outpacing the three-month average and making July’s 1.5% growth look like small change. Experts think a boost in consumer confidence meant sectors like health, beauty, and snacks had a field day, soaking up those rare British summer rays. But it wasn’t all sunshine and rainbows: clothing and footwear felt a cold breeze, and online sales – well, they've seen better days.

Why should I care?

The bigger picture: Inflation’s deflating hopes.

On the face of it, those figures seem positive, sure – but let’s not forget that they don’t account for inflation. So with the rate of price rises growing by more in July than sales grew in August, consumers are probably still shelling out more for less. And to muddy the waters further, Barclays’ consumer spending data, factoring in almost half of UK card transactions, shows a spending growth slowdown in August. So while some of these numbers look A-OK, the British retail sector (and the economy it supports) is essentially still on a knife edge.

Zooming out: Festive or festering.

The coming festive season is shaping up to be a make-or-break moment for retailers. With the chill of high interest rates and winter energy bills looming, they’re crossing their fingers for consumers to keep the holiday spirit (and spending) alive. Otherwise, more names might join the unfortunate ranks of those who’ve folded in the past year – like budget-friendly Wilko and chic homeware haven Cath Kidston.