Billions of dollars in loans – all directed and overseen by the government – have started flowing to China’s embattled property sector just as the country’s latest Covid wave is forcing lockdowns across more and more of the economy.
To ease the liquidity crunch, The People’s Bank of China – the country’s central bank – on Wednesday issued a notice outlining 16 steps to support the sector. These include local financial firms allowing real estate companies to defer repayment of some loans, such as property development and trust loans.
These steps were first revealed on November 14 by the People’s Bank of China and the China Banking and Insurance Regulatory Commission
Starting from November 11, property developers’ outstanding loans and trust borrowings due within six months can be extended as long as 12 months. In addition, trust companies are encouraged to offer reasonable developers funding support, widely viewed favouring the sector’s growth.
These announcements have seen loan/funding raising deals totalling more than $US70 billion revealed in the past week by banks and property companies.
The Bank of China, Agricultural Bank of China and Bank of Communications said separately Wednesday that they would provide credit lines to some property companies including the second biggest, China Vanke which will get close to $US30 billion alone in loans and other financial help from banks.
The news pushed up prices of Chinese property companies in Hong Kong and on mainland exchanges. The share prices of China Vanke, Country Garden, China Overseas Land, China Resources Land, CIFI Holdings and Greentown China rose between 3.4% and 11.1% in Hong Kong. A gauge tracking the sector, the Hang Seng Mainland Property Index, rose 5.3%.
But the gathering Covid wave that is threatening to stop the economy for a second time in less than six months, with the surge in Covid case numbers to all-time highs and the dramatic scenes of rioting at the huge Foxconn iPhone plant in central China is diverting attention away from the gathering bailout.
China on Thursday reported a new record high of more than 32,600 cases. That was after it reported 31,444 new local COVID cases for the day before, its highest daily number since the start of the pandemic nearly three years ago. Chinese cities imposed more curbs to rein in the pandemic.
Data from Japanese investment bank Nomura about the extent of the lockdowns suggests the property sector’s hopes of boosting sales will be delayed again by Covid.
From last Saturday to Thursday, China reported 200,000 symptomatic and asymptomatic cases, with no apparent sign any of the attempts to control the spread are working.
In GDP terms, nearly 20% of China’s economy was negatively affected by Covid controls as of Monday, close to the high of 21.2% recorded in mid-April during Shanghai’s lockdown, Nomura’s Chief China Economist Ting Lu wrote on Wednesday.
“Beijing has recently shown early signs of willingness to reopen, and it has rolled out some fine-tuning measures, but the reopening may be a prolonged process with discomfort,” Lu said in a separate report this week.
Local authorities in China have faced the difficult task of trying to make Covid measures more targeted, while controlling infections.
As of Monday, about 412 million people were affected by lockdown measures in mainland China, according to Nomura estimates. That’s up from 340 million the prior week, the report said.
The Nomura analysts noted that many lockdowns or controls are implemented without public announcement. “We believe [the southwestern municipality of] Chongqing (the municipality has 31 million residents) is currently experiencing the most severe local lockdown in China, based on our observation of numerous mobility metrics,” the report said.
Nomura also said it expects China’s central bank to cut bank reserve asset ratios by 25 basis points in the next couple of weeks, or even days, after the State Council said late on Wednesday it will use monetary tools to support the economy. That will free up more than $US160 billion to support lending.
Beijing has seen a rapid escalation in Covid controls since Tuesday as authorities have announced requirements for more frequent virus testing, and ordered more restaurants to suspend in-store dining.
Nomura again revised down China’s 2022 GDP growth forecast to 2.8%, from 2.9%.
More shopping malls have closed, as have large parks. Various apartment compounds have been locked down. At least six deaths have been reported so far – all elderly.
So far there’s no sign the increasing pace of lockdowns are impacting the weakened property sector but the longer it goes on the more damaging it will be to property and the rest of the economy. That’s what happened in mid-year.
Help is needed as shown by data from the National Bureau of Statistics earlier this month for the first 10 months of the year.
China’s property sector investment accelerated in the first 10 months this year, dropping 8.8% year-on-year, compared with the 8% the first nine months of 2022.
From January to October, the sales area of residential housing fell 22.3% from 2021, including a 25.5% drop in residential properties.
Sales of residential housing slumped 26.1%, and residential housing sales plunged 28.2%.
In the first 10 months of 2022, the new housing construction area tumbled 37.8% while housing completions slid 18.7% from the same period last year.
If anything, this data underlines why the government buckled and ended its opposition to aiding the property sector – as did the confirmation of Xi Jinping as leader for life at the Communist party Congress in mid-October.
So what have we seen? Well, Wednesday saw China’s Bank of Communications (BoCom) and then the Bank of China announce that they would provide a 100 billion yuan (nearly $US14 billion) each in credit lines to developer China Vanke.
This deal is significant because Vanke is China’s second-largest developer by sales.
Under the agreement, the banks will offer Vanke property development loans, mortgage loans and loans for merger and acquisition deals.
The lenders will also provide funds to the developer via letters of guarantee and bond investment, Reuters reported.
The banks said in separate statements the agreement with Vanke is part of the bank’s efforts to implement 16 measures outlined by Chinese regulators to support the property sector.
The same bank also agreed to provide a 20 billion yuan ($US2.8 billion) line of credit to Midea Real Estate
And the PBOC (China’s central bank) will provide 200 billion yuan (around $US28 billion) in loans to six commercial banks for housing completions.
Last week, two private developers Longfor Group Holdings Ltd and Midea received official approval to raise a total of 35 billion yuan ($US5 billion) in debt. Midea will issue $US2.1 billion in bonds, meaning it is raising close to $US5 billion.
Agricultural Bank of China said it had signed a strategic cooperation agreement with five developers including Vanke, Longfor and state-backed China Resources Land Ltd.
The funding will be helped by China’s National Association of Financial Market Institutional Investors which will widen a program to support about 250 billion yuan ($US35 billion) worth of debt offerings by private firms.
Some analysts pointed out the loan deals announced so far are with state-backed property companies. So far there’s been no news about any support for the largest property company, the privately owned China Evergrande which remains in trouble but is reportedly moving closer to a restructuring.
