China is nervous as housing crisis spreads (2023)

A blueprint for Chinese real estate developers in a risky industryto collapseat the default edge. One of China's largest wealth managers has not paid investors due to lack of funds. Billions of dollars have come outThe country's stock market.。

In China, August is a hurricane.

The crackdown on unsafe homebuilder business practices that began three years ago and the resulting slowdown in the housing market intensified rapidly this month. The economy in general is under threat and consumer, business and investor confidence is being eroded. So far, traditionally active Chinese authorities have done little to allay fears and appear determined to reduce the country's economy's reliance on real estate.

"What's happening in the Chinese real estate market is unprecedented," said Charles Chang, head of corporate credit ratings at S&P Greater China.

China's reliance on real estate has paid off in its seemingly never-ending construction boom, but after years of over-indebtedness and over-development, it has become a liability. As China's economy grew faster, promoters borrowed more to pay off the mounting debt, masking the excesses. but now Chinatrying to regain our balanceMany of its economic woes point to the real estate sector after emerging from the crippling pandemic lockdown imposed by its leaders.

Chinese consumers are spending less, in part because falling property prices have hurt their savings, a large chunk of which is property-related. Home-building jobs that used to be plentiful (construction, landscaping, painting) are disappearing. Uncertainty about how far the crisis could spread has kept corporations and small businesses from spending.

Local governments that rely on property sales to developers to fund community projects are cutting back on their services.

Financial institutions, such as trust companies, that invest billions of dollars on behalf of corporations and wealthy individuals face losses on risky loans to real estate companies, prompting protests from disgruntled investors.

One company after another went bankrupt because they couldn't pay their bills. According to rating agency Standard & Poor's, more than 50 Chinese developers have defaulted or defaulted on their debts over the past three years. The defaults revealed the reality of China's real estate boom: the model of borrowing money to build houses only works if prices keep rising.

As the crisis deepened, Chinese authorities ignored calls to intervene with a large rescue package. Instead, they opted for measured gestures such as easing mortgage requirements andlower interest rates。

In an editorial on Friday, the national newspaper saideconomic daily newspaperRecent measures will take time to take effect: "We must be aware that the risk resolution process cannot be achieved overnight and the market must be patient."

Policymakers tolerated the effects of the housing shock as even companies that could not pay all their bills continued to build and deliver homes.

For example, China Evergrande, which defaulted on its $300 billion debt in 2021, managed to complete and deliver 300,000 of the more than 1 million homes it finances, but not at the time of its collapse had completed.Evergrande files for bankruptcyprotected in the United States on Thursday.

But a lot has changed in the last few months. Households cut back on major purchases and home sales plummeted. This shock changed his fate.country gardenA real estate giant that was once proposed as a role model by the government. The company now expects a loss of up to $7.6 billion in the first half of this year and says its business is facing its biggest challenge in 30 years.

Country Garden has just a few weeks left before the company can raise cash to pay interest on some of its bonds or join others in default. There are also hundreds of billions of dollars in unpaid bills.

These developments have already scared off cautious homebuyers. According to the China Real Estate Information Group, new home sales by China's top 100 developers fell 33% year-on-year in July. Sales also fell 28% in June.

Investors fear authorities will not act quickly enough to prevent a larger crisis.

"I don't think they found the right solution to the problem," said Lu Ting, chief economist for China at Nomura Securities, who and his colleagues warned that falling home sales and defaults by property developers could set off a chain reaction in the economy at large. .

These concerns have spread to other markets. In Hong Kong, where many of China's largest companies are listed, a sharp drop in confidence sent the stock market into a bear market that was 21% off its January peak. Investors have withdrawn $7.5 billion from Chinese stocks over the past two weeks.

Real estate problems are also spilling over into China's so-called shadow banking system of trust finance companies. These institutions offer higher investment returns than traditional bank deposits and often invest in real estate projects.

The latest problems surfaced earlier this month. Two listed companies in China warned that they had invested in Zhongrong International Trust, which manages around $85 billion in assets, and said Zhongrong failed to pay the companies amounts owed to them. It was not clear if the investments were real estate, but Zhongrong was a major shareholder in several projects by the ailing developer.South China tomorrow post. Zhongrong did not respond to an email asking for comment.

A mob of angry Chinese investors gathered outside Zhongrong's Beijing office, demanding a "reward" and an explanation from the company. It was not immediately clear when the protests took place. Related videos were uploaded to Douyin, the Chinese version of TikTok, this month.

The demonstration was reminiscent of further resistance actions in China due to the real estate crisis. This is rare, but there are some recent examples.

Hundreds of thousands last yearThe owner refuses to pay.Mortgage on unfinished condominium. Some posted videos of the protest on social media, while homeowner groups followed the boycott online.

Both protests drew attention, but momentum slowed as the government stepped in to limit social media discussion while taking steps to ease tensions. Last week, new video outside Zhongrong's offices showed no protests, but police cars and vans were parked in and near the facility.

Claire Fu and Li They contributed to the coverage.