Zhuhai Huafa Group Co. missed payments on two trust products and sought bank loan extensions, triggering the worst sell-off in China’s credit market in two years.
State Backing Fails to Prevent Distress
The liquidity crisis at Zhuhai’s largest city-owned company rattled investors who viewed state ownership as a guarantee.
Bloomberg reported that Huafa retained a top AAA grade from a major local rating firm while carrying 413 billion yuan of interest-bearing liabilities.
Fitch Ratings rates the conglomerate BBB on the lower end of investment grade, and both firms placed Huafa on negative watch.
Financial strain spread beyond private developers to test local government support capacities.
As Caixin Global detailed, Zhuhai mobilized more than 40 billion yuan to support the sprawling conglomerate.
Zou Hui, director of the Zhuhai State-owned Assets Supervision and Administration Commission, told the 21st Century Business Herald in an interview cited by The Standard that the city delivered more than 40 billion yuan ($6 billion) in funding.
Zou added that the city plans to coordinate 70 billion yuan more.
We have the confidence and determination to jointly respond well to the current challenges,
Zou said.
Having started operations back in 1980, Huafa Group ranks among China’s top 10 real estate builders, boasting a total asset portfolio valued at 722.964 billion yuan (approximately $100.4 billion) as September drew to a close.
Between 2019 and 2023, the enterprise saw its total resources expand to 729.6 billion yuan.
Its turnover climbed to 179.5 billion yuan during that period.
Earnings belonging to the parent entity experienced only a minor bump from about 1.3 billion yuan up to 1.77 billion yuan.
Zhuhai’s capacity to provide support is itself under pressure.
Its 2025 general public-budget revenue stood at 49.41 billion yuan.
Government-managed fund revenue fell 64.2% to 3.27 billion yuan, down more than 90% from 2021.
Sell-Off Sweeps Through Chinese Markets
Selling pressure rapidly engulfed benchmark assets.
Concerns surrounding Huafa prompted investors to pull 11.6 billion yuan—roughly $1.61 billion—out of bond exchange-traded funds in a single day as the sell-off widened to encompass bank and government obligations, according to Bloomingbit.
China’s 30-year government bond futures suffered their biggest daily drop since March.
High-yield dollar notes experienced their worst week in about a year, according to The Star.
Traders pushed the average yield demanded to hold benchmark Chinese corporate bonds up 10.3 basis points over two days through Monday, marking the worst two-day stretch since October 2024.
Meanwhile, traders observed that Those rates on three-year yuan notes with the same local AAA ratings as Huafa were little changed Tuesday morning.
China Lianhe Credit Rating retained its AAA rating on November 4 while placing the group on negative watch due to weaker cash generation and concentrated repayment pressures.
Citing continuous deficits and diminishing cash flows, local rating agency China Lianhe Credit Rating also assigned a negative watch status to Huafa, further intensifying scrutiny over the sustainability of municipal-level financial backups.
Zerlina Zeng, head of Asia credit strategy at Creditsights Singapore, warned in The Star that Local government financing vehicles and some state-owned firms with weak standalone credit profiles are just a ticking time bomb.
Huafa Pursues Asset Sales
Huafa Chairman Guo Jin stated that the group repaid the principal and interest on several bonds on time while accelerating property sales and idle land liquidation.
Huafa reported property sales of 29.47 billion yuan in the first nine months of 2026.
Gree Group alongside Zhuhai Transportation Holding Group have agreed to acquire stakes in an affiliated holding structure for an aggregate sum of 4.57 billion yuan, a Huafa affiliate revealed.
While Huafa’s onshore bond due in 2029 rebounded 17% to 85 yuan, analysts emphasize that longer-term recovery depends on whether asset restructuring and local government intervention can fully bridge the liquidity gap.
Can local government backing and asset sales prevent further defaults across other municipal financing vehicles?