The multi-year collapse of China’s real estate sector claims a new victim

The latest casualty in China’s real estate crisis is the Zhuhai Huafa Group (Huafa), a diversified local government-owned enterprise of Zhuhai, a city of 2.5 million just north of Macao. As of end-October, media reports claimed that Huafa had failed to make payments on two trust loans (loans mediated by trust companies outside the formal banking sector). The defaults led to a severe decline in the market value of Huafa’s outstanding bonds, forcing the city to hastily arrange a rescue package of more than 40 billion yuan (5.4 billion euros). The case has raised widespread concerns in Chinese bond markets as a reminder that local-government-owned enterprises are not immune to the effects of the real estate sector collapse.

The Zhuhai Huafa Group had grown rapidly over the past 15 years into a huge conglomerate, which, according to media reports, currently controls over 1,400 subsidiaries, 12 of which are exchange-listed. Huafa’s rapid growth has been financed largely through borrowing. At the end of 2025, Huafa’s total interest-bearing debt exceeded 400 billion yuan, a remarkable amount for a city-owned enterprise focused on local development. The entire 2025 GDP of Zhuhai city was 450 billion yuan. Huafa’s main business operations include real estate and regional infrastructure development, but it has also invested in tech companies and financial services. In practice, Huafa seems to have implementing economic policies of the central, provincial and local governments. Huafa aggressively acquired land rights in the early days of the real estate downturn in late 2021 and 2022, and many of its current problems stem from the ongoing struggles of the real estate sector. The company made a loss of 17 billion yuan last year, mainly write-downs on losses from real estate and land rights. According to last year's financial statements, the company had assets of 750 billion yuan, but there are still uncertainties about the true value of real estate assets.

Heavily indebted real estate conglomerates similar to Huafa likely exist in other Chinese cities, so a continued decline in the real estate sector is expected to bring more such cases to the surface. Repairing the aftermath of the real estate crisis will put long-lasting strain on local economies, many of which are already heavily indebted.