China unveils sweeping rescue measures

On September 24, 2021, Wuhan, China, Evergrande Evergreen Community.

Chinese authorities have unveiled sweeping measures to rescue the country’s struggling real estate sector as regulators seek to offset years of draconian pandemic containment measures and a property crackdown that has brought the world’s second-largest economy to a standstill.

The banking regulator and the central bank issued a set of 16 internal directives on Friday to promote the industry’s “stable and healthy development,” Chinese state media reported on Monday.

These include credit support for heavily indebted property developers, financial support for securing project completion and handover to owners, and deferred payment loan assistance for homebuyers.

On the same day, the National Health Commission issued 20 regulations to “optimize” China’s zero-coronavirus policy, easing certain restrictions to limit its social and economic impact.

“We see this as the most critical turning point since Beijing sharply tightened financing for the property sector,” Lu Ting, Nomura’s chief China economist, said in a note.

“We think these measures show Beijing’s willingness to reverse much of the financial tightening.”

Hong Kong shares surged more than 3 percent on Monday after the measures were announced, extending Friday’s gains of more than 7 percent before paring gains to 1.7 percent by the close.

Hong Kong-listed shares of Country Garden, China’s largest developer by sales, closed up 45 percent, while those of archrival Greenland rose more than 35 percent.

“Not Salvage”

Beijing imposed broad lending restrictions on property developers in 2020, exacerbating their liquidity problems and causing several of the largest companies to default on bond payments.

That has had serious knock-on effects for the sprawling property industry, with cash-strapped developer Evergrande, China’s largest, and others failing to complete projects, prompting mortgage boycotts and protests from homebuyers.

According to a document circulated online, these measures emphasize “guaranteeing housing handover” and order the development bank to provide “special loans” for this purpose.

The document requires financial institutions to treat state-owned and private real estate companies equally and to “actively cooperate with distressed real estate companies in risk management.”

The measures also include “an extension of the transitional period to arrange … real estate loans” for struggling developers, and support for “bond financing by high-quality real estate companies”.

“The plan includes financial stabilization measures aimed at preventing large-scale defaults and thus providing a ‘soft landing’,” ANZ analysts wrote in a note.

But analysts warned that the changes – combined with a limited easing of zero-coronavirus measures – would not lead to an immediate recovery for the struggling industry.

“While not many expect the current property downturn to trigger a financial crisis, the prevailing view is that the sector will remain weak for longer. So, for developers, the worst is far from over,” said Macquarie Economics J. Larry Hu said in a report.

“The package is not a bailout for real estate developers,” wrote Longzhou Economics analyst Andrew Batson.

“With the new policy, the government is working harder to make its current approach to Covid containment and the housing market work, rather than pivoting to a different approach.”

Prices of new homes have been falling for more than a year, while demand has struggled to pick up as ongoing stringent restrictions on the outbreak have dented consumer confidence.

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