2023-11-23 14:01:56
China allocates $446 billion to rescue 50 faltering real estate developers
Chinese leaders are sparing no effort so far to end the country’s real estate crisis, increasing pressure on banks to fill an estimated $446 billion financing gap needed to stabilize the struggling large sector and hand over millions of unfinished apartments to their owners.
Policymakers are finalizing a draft list of 50 developers that the authorities consider eligible for financial support, which includes the two groups, “Country Garden Holdings Co.” and “Sino-Ocean Group,” indicating Beijing’s move to help… Some of the most affected construction companies, according to the American Bloomberg network.
At the same time, the country’s top legislative body announced that banks should increase financing for developers in order to reduce the risk of default and ensure the completion of housing projects. In this regard, Lu Ting, an economist at Nomura Holdings, said, “Ensuring the completion of unfinished homes is an important issue because it relates to people’s trust in the government and banks.” With Chinese President Xi Jinping stepping up support for the broader economy, this week’s moves indicate increased urgency to stop the decline in the real estate sector from derailing growth and endangering financial stability.
While developer stocks and bonds have risen from distressed levels, it is unclear whether the latest measures will be enough to restore confidence, because shifting more of the burden to lending banks also comes with risks.
The $56 trillion banking sector is already facing shrinking profit margins and deteriorating loans, as authorities have steadily increased pressure on lenders to support the economy and the real estate sector.
Net interest margins at major state-owned banks fell to a record level of 1.74% at the end of the first half of 2023, below the sector-wide threshold of 1.8% considered necessary to maintain reasonable profitability.
The sector’s shares suffered a strong blow. A Bloomberg index of Chinese banks listed in Hong Kong has fallen as much as 18% this year from a high in May, while the four major state banks remain close to record low valuations of regarding 0.4% of their book value.
This happened even following regulators directed banks to reduce deposit interest rates three times over the past year, to ease margin pressure, and to reduce reserve requirements twice this year to enhance their lending capacity.
Members of the Standing Committee of the National People’s Congress, China’s Communist Party-controlled parliament, said on Wednesday that increased funding would ease the “panic expectations” of households. The comments from members with nominal oversight of the central bank increase pressure on the People’s Bank of China to do more to support real estate.
Commenting on this, Stephen Leung, Executive Director of UOB Kay Hian, says: “This is like morphine to relieve pain, but it takes time to help with recovery, and this is to ensure that unfinished projects are delivered, and to stop the exacerbation of concerns regarding China’s economic outlook.” “.
Chinese officials are scheduled to hold the annual Central Economic Work Conference next December, to clarify policy goals for the coming year.
The task of achieving stability in the real estate sector remains difficult. Nomura estimates that the total financing gap to complete the remaining housing units will be regarding 3.2 trillion yuan ($446 billion), according to a note this month.
Country Garden, Sino-Ocean and CIFI Holdings Group Co have been included in China’s draft list of 50 developers eligible for a group of projects, people familiar with the matter said on Wednesday. the support.
The sources added that organizers are scheduled to finalize the list and distribute it to banks and other financial institutions within days. Country Garden’s 5.625% bonds due 2030 rose 40% to 7.1 cents on the dollar on Wednesday, their highest close since September 26, according to data compiled by Bloomberg.
Its 3.3% dollar bonds due in 2031 rose 38% to 7.1 cents. Shares jumped as much as 7% in Hong Kong trading on Thursday.
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