They need new equity or a restructuring, not more debt. The problem is that many projects already have too much debt and may have zero or negative value. Beijing-based Everbright Bank estimates that Chinese developers have suspended construction on as many as 8 million homes that require Rmb2 trillion ($292 billion) to complete. ![]() It’s hoped that the banks will leverage the funds to provide Rnb1 trillion of loans to refinance stalled real estate projects, a July 27 FT article reported. The People’s Bank of China will issue about Rmb200 billion of low-interest loans to state commercial banks. By default, they reveal which developers the Chinese government doesn’t believe are worth saving and may lead to even greater stress on those developers without government-guaranteed debt. The bond guarantees may open up a can of worms, however. Shares of these developers rallied on news of the government guarantees. These companies have been hurt by the downturn, but they are presumably the strongest developers in the market and are being helped by the government to ensure they survive the harsh property downturn. The guarantees don’t apply to their dollar-denominated debt. The Chinese government is offering full guarantees on the domestic, yuan-denominated bond sales of six private Chinese developers: CIFI Holdings Group, Country Garden, Gemdale, Longfor, Seazen Group, and Sino-Ocean, an August 24 WSJ article reported. The rate on the country’s one-year loan prime rate was also cut, by 0.05ppts, to 3.65% many commercial loans in China are based on this rate. This was the second time the rate was lowered in 2022, and one more cut is expected this year. Last week, China made buying a home more affordable by lowering the five-year loan prime rate (LPR)-a benchmark Chinese banks use when extending mortgages-by 0.15ppts to 4.3%, an August 22 FT article reported. Here’s a look at some of the economy-boosting steps the country has taken so far: The China MSCI share price index has fallen 19.8% ytd through Tuesday’s close, and the Shanghai-Shenzhen 300 is down 17.5% over the same period ( Fig. So far, the financial markets have only yawned in response. With the country’s Q2 GDP having risen only 0.4%, China has been announcing new programs in rapid succession to bolster the economy in advance of the National Congress of the Chinese Communist Party on October 16 ( Fig. The country’s leverage vastly overshadows even the US’s sizable debt load, which equals 98% of GDP. In all, China’s debt is expected to reach 275% of its GDP, according to an estimate by China’s director of the National Institution for Finance and Development. And the country is owed $1 trillion by struggling countries around the world who participated in China’s Belt and Road initiative. Record heat and drought have forced the country to shut industrial plants in hard hit areas to preserve electricity for air conditioning. It’s still selectively locking down neighborhoods when Covid cases spike. Regional banks could be even more exposed to nonperforming real estate loans than their national counterparts.Ī real estate debacle isn’t the only headwind China faces. An S&P Global Ratings exec quoted in the article estimates that Chinese banks’ nonperforming ratio in the property development sector will rise to around 5.5%-5.6% by year-end, more than double the year-earlier 2.6%. Nonetheless, the banks reported a net profit for the period. China Construction Bank and Bank of China reported a 68% and a 20% increase in bad real estate debt during H2, an August 30 Reuters article reported. And in more than 100 cities, people have stopped paying their mortgages on homes under construction or have threatened to do so.īanks have started to show the impact, reporting large jumps in non-performing loans. On Tuesday, Country Garden, considered among the strongest developers, reported that profits fell 96% y/y in H1-2022. More than 30 developers have defaulted on their dollar-denominated debt. Until they open the floodgates, this drain on economic growth isn’t going away. China’s real estate market has crumbled over the past year, and so far the Chinese government has taken only incremental steps to staunch the bleeding. … And better late than never: FedNow brings the instantaneous financial transactions that other countries enjoy to the US.Ĭhina: Time To Think Big. ![]() Jackie examines how and why estimates have been changing for various sectors and industries. … Industry analysts still expect S&P 500 companies to log respectable earnings growth this year and next despite having lowered their sights for many. ![]() New initiatives will facilitate home-buying, guarantee the debt of select private developers, make low-interest loans to banks, and provide financial backing for infrastructure projects. Check out the accompanying pdf and chart collection.Įxecutive Summary: China’s government is mobilizing to shore up the country’s struggling, debt-laden economy.
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