China’s finally starting to do something about the three-year property crisis that’s been weighing on its COVID-scarred economy.
Beijing is urging banks to boost financing for property developers, media outlets reported this week.
Authorities may let banks offer unsecured short-term loans to the developers on a “white list” of 50 developers for the first time, Bloomberg reported on Thursday, citing people familiar with the matter. They include embattled real-estate giant Country Garden and state-backed China Vanke.
As developers will not need to provide collateral such as land, property, or other assets to back the loans, this will free up resources for real-estate firms to repay their debt, the unnamed sources told Bloomberg.
If approved, the measures will be the biggest taken by Beijing to address the $3.2 trillion Chinese yuan, or $451 billion, funding gap needed to complete around 20 million incomplete pre-sold units across China, according to Nomura economists earlier this month.
China’s real-estate sector has been mired in a crisis since the second half 2021 when a liquidity crisis at Evergrande — once China’s second-largest developer — came into public view.
Other Chinese real-estate developers ran into similar issues and began defaulting on their bond payments, spurring fears the crisis could spill over to other sectors in the country and globally.
China’s economy is struggling to stage a convincing post-COVID recovery, with youth unemployment hitting a record high earlier this year. China has stopped publishing this data.
While Beijing has been trying to cool speculation in the previously red-hot property market, it’s now caught between the sector’s slump and reviving its economy because the real-estate market, along with related industries, contributes as much as 30% to the country’s GDP.
China has been trying to boost demand for real estate, but there just isn’t consumer appetite for spending against the backdrop of economic uncertainty and falling property valuations, wrote Rory Green, the chief China economist at GlobalData TSLombard in a Thursday note seen by BI.
But Green thinks Beijing is finally starting to take its crisis extremely seriously.
“Officials have finally started to show signs of panic, with triggers for greater easing, growth target threat, financial stability and unemployment risks all flashing,” he added in his note. “The rhetoric has changed and a number of relatively more aggressive and unusual stimulus measures have come in to play.”
Still, not everyone is convinced Beijing’s property “white list” will be the solution to China’s property problems.
“The White List will probably still fall well short of being White Knight for the property sector that has a plethora of impediments to work through,” wrote Vishnu Varathan, the head of Asia economics and strategy at Mizuho Bank in a note on Tuesday seen by Business Insider.
For a start, banks may have concerns about lending to struggling developers, he added.
China’s central bank did not immediately respond to a request from BI for comment.
Source : Businesse Insider
