Rising trade tensions with the US haven’t dampened the pace of dollar-denominated bond issuance by Chinese companies, particularly in the highly-leveraged property sector. In the last 12 months, real estate issuers in China have increased their outstanding debt by $38 billion, half of that in this year alone.

The biggest names here include Evergrande Group, Sunac and Country Garden, with most issuance done via Caribbean tax havens. Let’s look at them in more detail.

According to Evergrande’s annual report, it owns property inventory with floor area covering about 50 square kilometres in mainland China, an area the size of Chicago, as well as land held in reserve. Country Garden has about 24 square km, while Sunac boasts 150 square km of floor area, the size of Liechtenstein.

These three are just the tip of the iceberg – there are dozens more of Chinese developers whose bonds feature in iBoxx’s emerging markets corporate bond index. According to Chinese government statistics, there are about 1,200 square km of uncompleted properties in China – a floor area that if laid out flat would be almost the size of Greater London.

To pay coupons on their bonds, the property developers have to complete these buildings and then sell these properties at high prices to China’s growing middle class. While rating agencies categorise most of this as junk debt, investors such as Pimco’s emerging markets bond fund have snapped it up.

Total outstanding Chinese corporate borrowing tracked by iBoxx is now approaching the half trillion dollar mark, with $120bn in real estate alone. Shanghai property prices, measured in dollars per square foot, are now similar to London and New York. Even so, average credit spreads for the sector have tightened by 145 basis points this year. Things worked out well for Evergrande chairman Hui Ka Yan, who spent $1 billion of his own money buying his company’s bonds last October.

In June 2007, then-Citigroup CEO Chuck Prince famously talked about having to “keep dancing until the music stops”. That remark came just before the global financial crisis. In June 2019, the music may be still playing, but the notes are growing more discordant by the day.