I know it is a daily event but that does not mean it’s benign:
China’s credit market is now showing stress on an almost daily basis, as a worsening property crisis shatters assumptions about safe borrowers and even Chinese investors turn against troubled debtors.
The country’s junk dollar bonds were on the brink of record lows Thursday, as a state-backed developer sought payment delays on $1.6 billion of dollar notes. In other signs of stress, the debt of a private builder deemed healthy just months ago sank, while creditors spurned a restructuring plan by the parent of BMW AG’s China partner.
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Somebody else has finally identified the real problem. Counterparty risk:
“Since 90% of residential property sales in China are of uncompleted units, a perception that developers cannot be trusted to finish construction will make people more unwilling to buy new housing, creating an even bigger problem in real estate,” Andrew Batson, research director at Gavekal Dragonomics, said in a report.
MOAR attempts to fix it:
China’s banking regulator vowed to ensure developers complete construction for pre-sold homes, an attempt to alleviate homebuyer concern as more people threaten to boycott mortgage payments.
The China Banking and Insurance Regulatory Commission will work with the central bank, the housing ministry and local governments to ensure home delivery and social stability, Liu Zhongrui, an official with the regulator’s statistics department, said during a briefing in Beijing on Thursday.
The authorities will also keep property financing “stable and orderly” while supporting the industry, Liu said.
No, they won’t. The dollar bond market is telling us all we need to know on that front.
This horse has bolted. The bubble psychology of property has burst. There’s no fixing it though the usual suspects wish that they could. Goldman told everybody to buy distressed Chinese debt many months ago at much higher prices. It is still pining for the bailout:
Following a weakQ2 GDP print, we expect3.3% full-year GDP growth in China in2022, far below the government’s “around 5.5%” target. Despite strong sequential improvement in activity in June, we think recent momentum may not continue given the temporary boosts in June from pent-up demand and the resurfacing oflocalCovid outbreaks in July. We think sporadic local outbreaks will continue to be hard to avoid under the current zero-Covid policy (ZCP), even if frequent mass testing has reduced the risk of another Shanghai-style lockdown. We maintain that the ZCP likely won’t be relaxed until 2Q23 after next year’s Two Sessions in March, but uncertainty around China’s Covid policy is significant. And, while we think the virus will be the most important determinant of growth in coming quarters, we view recent news on homebuyers refusing to pay mortgages on unfinished properties as a reminder that many of the property sector’s problems also remain unresolved. Property sales are still depressed and the ongoing recovery is fragile, and we believe it’s critical for policymakers to restore confidence in the market quickly to avoid a potential negative feedback loop and renewed deterioration in the property market. That said, we think government-led infrastructure can continue to outperform in 2H22, as policymakers have continued to ramp up fiscal support in recent months.
All that support is doing is replacing lost land sales revenue.
Sometimes there tipping points in markets and macro.
China has passed one.