China’s Property Crisis Is Rippling Through the Economy

Once a beneficiary of China’s property boom, Lan Mingqiang is now an unwitting casualty of its unraveling.

The financial troubles at one real estate company, Country Garden, have left him unable to pay the school fees for his son, who is starting seventh grade. Country Garden owes $21,000 to his company, which makes fences and billboards on construction sites. Now, with Country Garden days away from a default, this money is more out of reach than ever.

“Nowadays, real estate

Mr. Lan is just one in a long line of people waiting to get paid by Chinese property developers. Once the country’s biggest creator of jobs, the housing market also enriched local governments and created a store of household wealth. But a move by regulators to deflate a property bubble and China’s slowing economy have accelerated a crisis that is spreading to all corners of life.

Small businesses and workers who thrived on the decades-long property boom are no longer getting paid. Low on the payback priority list for developers but an important part of the housing ecosystem, the group includes painters, cement makers and builders, as well as real estate agents and companies that furnished sales offices.

As a group, suppliers are waiting on at least $390 billion in payments, according to the research firm Gavekal Research. And that’s a conservative estimate; the number is probably larger.

People want their money and are taking action. Lawsuits and complaints to local authorities are piling up. Construction workers are posting protest banners at empty construction sites that have been chained and locked. “It’s shameful to delay wages,” one sign says. “Country Garden, pay back my hard-earned money,” reads another.

Liu Yaonan, a real estate agent in Guangdong Province, doesn’t have much confidence that Country Garden will ever pay. He has received only three-quarters of his usual commission for the last year and says he is still owed nearly $8,000.

He said he has called Country Garden’s complaint hotline over and over, he said, but the person who answers takes no action other than noting his grievance.

“It is unfair for real estate agencies, because once a developer goes through a debt crisis, the system first protects the buyers,” Mr. Liu said. “Other material dealers, agents and engineers basically cannot get paid.”

The flurry of activity is adding to the strain on China’s economy when confidence is already low. Years of lockdowns and other Covid prevention measures have weighed on consumers, who are spending less. Companies have pulled back on hiring. Fewer and fewer people are buying homes.

More than any other company, Country Garden and its sudden reversal of fortunes illustrates the severity of this economic strain. Just a year ago it was China’s biggest real estate firm by sales, and one of the few private companies that suppliers and lenders could depend on to pay the bills.

But a drop in sales over the past six months has pushed it to the edge, and in August it threw up its hands.

Country Garden skipped two small interest payments on bonds, something that has pushed it to the edge of default. If it fails to make those payments by early September, when a grace period ends, it will join a long list of private companies that have defaulted. It also disclosed that it might have lost as much as $7.6 billion over the first six months of the year.

Country Garden’s swing from success to near failure is deepening fears that an abrupt end is in sight for China’s developers, many of which have been under stress for several years as regulators have tried to restrict their bank financing.

At first, some developers were able to keep going, even as they failed to make good on their obligations. They found other ways to compensate suppliers. China Evergrande, the behemoth that defaulted on hundreds of billions of dollars of debt in 2021, repaid some of its suppliers with unfinished apartments instead of cash, on the theory the suppliers could sell them to reclaim the money they were owed.

These days, even bartering is no longer an option.

“Such apartments have run out; we can’t get them,” said Han Tao, a manager at a landscaping company that is owed $1.4 million from property developers. For Mr. Han, apartments wouldn’t have been that useful anyway; no one is buying them right now.

After years of building a thriving business providing cherry trees and acacias for big property projects, he and his colleagues are setting more modest goals. One change: They will accept a job only if cash is paid upfront.

“We keep our business small,” he said.

On China’s social media platform Weibo, construction workers complain about missed paychecks. Some post pictures of court documents from lawsuits. Others show records of the complaints they have lodged with local authorities. Many express a sense of despair and frustration.

Liao Hongmei spent years in a legal battle to try to get $690,000 from China Evergrande. She even won. But Evergrande still hasn’t paid her, and, in her view, businesses the size of hers will probably never get the money they are owed.

“We small suppliers don’t have a say,” said Ms. Liao, who built a successful company a decade ago providing marketing and decoration services to Evergrande for its sales offices in the province of Jiangsu.

Flashy sales offices have long played a key role in bringing in cash that property developers needed to keep growing. Most companies sold apartments before a project was finished, with customers paying upfront.

Inside the sales offices, agents dressed in suits typically pitch potential buyers on the bells and whistles. A miniature model of the residential complex gives a sense of what the complex will look like when it is built. A tour of a model apartment, often decorated lavishly, sells them on a lifestyle.

According to Ms. Liao, sometime around 2016, Evergrande began to issue i.o.u.s — known in dry financial parlance as commercial acceptance bills — for payment within six months. Then, in 2017, it started to give one-year i.o.u.s. The time it took Ms. Liao to get paid got longer and longer. But the money still came in, she said, until the company defaulted on its debt in 2021.

Now Ms. Liao’s business is on the brink of bankruptcy. She sued Evergrande and won, but has no way to get her money because the government is supervising the restructuring of the company, and its first priority has been to make sure Evergrande finishes the apartments it sold. Last year, it said it had finished 300,000 and still had 720,000 more to complete, according to its 2022 results.

On Aug. 17, Evergrande filed for bankruptcy protection and has signaled that it is close to a deal with some of its biggest creditors. Trading in its shares resumed in Hong Kong on Monday, after a 17-month suspension. The stock plunged 79 percent.

But for small-business owners like Ms. Liao, who is at the very back of the long line of banks, creditors and companies seeking money, there isn’t much hope. Many of her peers who have filed similar lawsuits have given up, she said. Ms. Liao said she hoped that once Evergrande finished the apartments it owed home buyers, there would still be something left for people like herself.

“A little money,” Ms. Liao said, is her only request. “But it doesn’t seem like that is going to happen.”

Li You and Zixu Wang contributed to research.