China: other substantial financial aid to the real estate sector, but it may not be enough
China tries to support the real estate sector with new aid measures. It is good that the authorities are doing more to support the real estate sector. Yesterday Beijing announced new measures to support the debt of private companies, facilitating their sale, and this has prompted the shares of some real estate development companies to grow. However, neuupre this measure will bring back to recovery a market that is, however, marked by a crisis with deep roots.
Stocks from developers such as Country Garden Holdings and CIFI Holdings rose after the National Association of Financial Market Institutional Investors expanded the bond financing program to approximately 250 billion yuan ($ 35 billion) for private companies, including the developers.
The program, first introduced in late 2018, is one of the "three arrows" that the People's Bank of China uses to help private companies raise capital. The other two channels include bank lending and equity financing.
In September, Bloomberg reported that policymakers called on state-owned banks to increase lending to developers to alleviate their liquidity crisis. That is why this financial tool is used.
But as Nomura economist Lu Ting pointed out, there are reasons to question the program's effectiveness. First, new home sales are the main source of funding for developers, far more than any other channel. Last year it accounted for 53% of total developer funding, compared to 12% for bank loans.
In the first nine months, sales of new homes contracted by 31%. At this rate, Nomura estimates developer funding from home sales will decline by 3.3 trillion yuan ($ 456 billion) this year. This is too large a funding hole. Below is the relevant graph:
Second, the $ 35 billion share of bond financing affects all private companies, not just builders. Builders accounted for 15% of all private bond issues between 2018 and 2020, before dropping to around 9% in 2021, according to Nomura. Direct aid to the real estate sector is therefore much lower.
Finally, developers have yet to repay a large amount of bonds maturing in the coming months, with about 30 billion yuan of onshore debt maturing by March. As a result, even if they were to gain access to the bond market, net fundraising would be limited after the debt was paid. So, in the end, these resources may be too limited to actually help the Chinese real estate sector overcome an epochal crisis, also linked to demographic reasons.
Thanks to our Telegram channel you can stay updated on the publication of new articles of Economic Scenarios.
The article China: other substantial financial aid to the real estate sector, but it may not be enough comes from Economic Scenarios .
This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/cina-altri-consistenti-aiuti-finanziari-al-settore-immobiliare-ma-potrebbero-non-bastare/ on Thu, 10 Nov 2022 09:00:21 +0000.