Further developments in Chinese property have markets excited:
China will launch a real estate fund to help property developers resolve a crippling debt crisis, aiming for a warchest of up to 300 billion yuan ($44 billion) in a bid to restore confidence in the industry, according to a state bank official with direct knowledge of the matter.
The move would mark the first major step by the state to rescue the beleaguered property sector since the debt troubles became public last year.
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The size of the fund would initially be set at 80 billion yuan through support from the central bank, the People’s Bank of China (PBOC), the person, who declined to be identified due to the sensitivity of the matter, told Reuters.
He said state-owned China Construction Bank (601939.SS), will contribute 50 billion yuan into the 80 billion yuan fund, but the money will come from PBOC’s relending facility.
If the model works, other banks will follow suit with a target to raise up to 200 to 300 billion yuan, he added.
…”We don’t know details of the fund yet. If just 80 billion it’s not enough to solve the problem,” said Larry Hu, chief China economist at Macquarie. “I believe the fund would be part of the bigger package to solve the current debt and mortgage crisis, because it alone would not solve all the problems … we need a real estate recovery.”
…The source said the fund will be used to bankroll the purchases of unfinished home projects and complete their construction, and then rent them to individuals as part of the government’s drive to boost rental housing.
…”If the (fund) can be realized in the near future, it helps avoid more developers from defaulting and also helps to improve market sentiment as well as developers’ sales,” said Raymond Cheng, head of China research at CGS-CIMB Securities.
…Regulators and local governments would select the developers eligible for support from the fund, REDD said, adding that the fund could be used to buy financial products issued by the developers or finance state buyers’ acquisitions of their projects.
In one sense, this is important. It will force banks to lend to dodgy developers to get their projects completed. So it may help assuage the mortgage strike.
But that’s about it. It’s not going to lift sentiment in the property market. Are you going to rush out and buy an apartment because your insolvent and tottering developer has need of an opaque government funding facility? Pfft.
This does nothing to restore wider faith in the collapsing real estate ponzi scheme and will not lead to any recovery in sales.
The latest data remains terrible:
COVID is still making things harder:
As mobility stalls:
The post-COVID rebound is over not starting. Pantheon:
Zero-Covid is not the only drag. The headwinds from property are intensifying. Fixed asset investment growth slowed again in June, despite the economy’s reopening, and the push from Beijing to boost infrastructure spending. Stimulus did have some effect, with infrastructure investment accelerating to 8.2% year-over-year in June, from 7.2%. But the offsetting drag from real estate again proved hard to counter; real estate FAI fell 11.8% year-over- year in June, after a 6.8% drop in May. We see little hope of a resolution to the property downturn this year. Reopening provided some support to prices and sales, but both continued to fall, year-over-year, and measured on a rolling 12-month basis, sales and starts extended their decline in June. The decline will likely reaccelerate in Q3, with limp pent-up demand now spent. The spreading mortage payment strike will weigh on the market through multiple channels, further depressing prices and developer revenues. Infrastructure spending will need more support to provide a meaningful offset; combined infrastructure and property FAI fell 2.7% year-over-year in June, after a flat May.
And what is coming next is now obvious to all. Trade shock:
Walmart provided a business update today and revised its outlook for profit for the second-quarter and full-year, primarily due to pricing actions aimed to improve inventory levels at Walmart and Sam’s Club in the U.S. and mix of sales.
Comp sales for Walmart U.S., excluding fuel, are expected to be about 6% for the second quarter. This is higher than previously expected with a heavier mix of food and consumables, which is negatively affecting gross margin rate. Food inflation is double digits and higher than at the end of Q1.
This is affecting customers’ ability to spend on general merchandise categories and requiring more markdowns to move through the inventory, particularly apparel.
During the quarter, the company made progress reducing inventory, managing prices to reflect certain supply chain costs and inflation, and reducing storage costs associated with a backlog of shipping containers. Customers are choosing Walmart to save money during this inflationary period, and this is reflected in the company’s continued market share gains in grocery.
Yesterday’s bailout fund is remarkable only in how weak it is. Much more will be needed in due course as authorities manage the structural end of the greatest property ponzi in history.