South City Becomes First Chinese State-Backed Developer to Face Liquidation Amid Property Crisis

On August 12, China South City became the fifth property development company in China and the first state-supported one to be ordered into liquidation by a court amid the ongoing downturn in the real estate market.

The Hong Kong High Court issued the liquidation order, appointing court-controlled liquidators who have since taken full possession of the company’s assets across various locations. This announcement was made in a company filing late last night. The developer specializes in logistics facilities and commodity trading centers.

The other four developers that have been forced into liquidation since the market downturn began in 2020 are Sinic Holdings Group, DaFa Properties Group, Jiayuan International Group, and China Evergrande.

Last February, South City defaulted on two US dollar bonds and quickly announced plans for debt restructuring. However, by January this year, when no concrete plan had been disclosed, Citibank International—the trustee for the bonds—filed a winding-up petition in the Hong Kong High Court.

This case highlights a common scenario where offshore debt restructuring remains unresolved for Chinese mainland builders, leading courts to expedite liquidation procedures, according to Huang Lichong, president of Huisheng International Holdings.

“This situation illustrates the challenge developers are facing with cash flow shortages and the inability to secure creditor approval for restructuring,” Huang explained. “It also reflects courts’ decreasing tolerance for companies attempting to delay proceedings through tactics that stall the process.”

Huang added that the increasing trend toward judicial liquidation has become more evident following the Evergrande case. He predicts that more bond issuers—particularly smaller and mid-sized developers with poor refinancing options and limited collateral—are likely to face similar pressures.

Founded in Hong Kong in 2002, South City initially developed projects in Shenzhen, which once hosted China’s largest cross-border e-commerce industrial cluster. The company later expanded into other mainland cities including Nanning, Xi’an, Zhengzhou, and Chongqing.

In May 2022, Shenzhen Special Economic Zone Construction and Development Group, a municipal government investment and operations platform, invested HKD 1.9 billion (about USD 242 million) to become South City’s largest shareholder with a 29.3% stake. The company used this capital infusion to settle some of its debts.

Since then, SEZ Construction and Development provided multiple forms of financial support—acquiring assets, issuing bridge loans, and assisting with syndicated loan agreements with various banks. However, these efforts proved insufficient, and South City’s debt issues remained unresolved. As of the end of last year, the company’s interest-bearing liabilities totaled HKD 30.2 billion (approximately USD 3.8 billion), with more than 60% maturing within a year. Its cash holdings were just HKD 40 million (around USD 5.1 million).

This financial instability led auditors to issue a disclaimer on South City’s 2024 financial statements.