Chinese developer Country Garden retreats from smaller cities

China’s top property developer, Country Garden Holdings, announced plans to reduce its footprint in smaller cities and focus solely on contract construction and construction robots as part of its efforts to transform into high-tech enterprise.

The company reported a 90% decline in core profit for 2022, with a record net loss driven by a sluggish property market and the ongoing debt crisis in the sector. Country Garden’s core profit dropped from CNY26.9bn to CNY2.6bn.

The developer’s net loss was CNY6.1bn, reverse of a CNY26.8bn net profit in 2021. The company had already reported weak results earlier this month with gross profit margin dropping, provisions to impair property projects rising, and net foreign exchange losses.

A few state-backed peers managed to record a rise in 2022, while many others reported a drop in core profit or a loss.

For the rest of the year, Country Garden will increase its land bank in tier one and two cities from 40% to 50%, and concentrate on contact construction to build projects for other companies, focusing on asset-light and high margin that would boost efficiency and reduce costs. With sluggish growth in tier-3 and lower-tier markets, the company is suspending all other new businesses set up.

The company’s total interest-bearing debts fell 15% to CNY271.3bn, and its net gearing ratio fell 5.4 percentage points from end-2021. 

Although the company’s shares reversed losses after the announcement, closing up 5.1%, the property industry in China is currently struggling. Property firms are unable to complete projects and sell new homes due to mid-2021’s debt crisis in the sector. Yet, the senior management at Country Garden Holdings remain optimistic about achieving their goals.