An Empirical Study on the Causes of Default of US Dollar Debt in the China’s Property Based on Z-score Model

The Chinese real estate industry heavily relies on U.S. dollar debt as a critical tool for financing. However, since 2018, frequent and substantial defaults on Chinese real estate dollar bonds have raised financial market risks. This paper examines the case of Sunac China to analyze the reasons behind the default of Chinese real estate dollar bonds using the Z-score model. The study finds that a combination of internal and external factors caused the default, with internal factors dominating during the risk accumulation phase before 2020, and external factors becoming prominent after 2020. Internal factors include high leverage ratios, weakened solvency, and reduced profitability. These factors led to financial distress for Sunac China, making it difficult to meet its debt obligations. External factors include the COVID-19 pandemic, a sharp decline in market demand, and regulatory policies aimed at controlling the real estate market's speculation. These factors, combined with the internal factors, triggered the default of Sunac China. The findings have implications for risk management and governance policies in the industry. Prudent debt management policies should be adopted to control the risks associated with U.S. dollar debt, such as limiting excessive borrowing and enhancing financial transparency. Regulatory policies aimed at controlling speculation need to be balanced with the need for sustainable growth in the real estate market. Overall, this paper provides valuable insights into the intrinsic causes of stabilizing the Chinese real estate industry, which can inform policies to mitigate financial risks and promote sustainable development.