BEIJING/HONG KONG, Aug 16 (Reuters) – A deepening crisis in China’s property sector has quickly dampened any remaining sliver of momentum in the economy as major Chinese trust firms default on investment products and home prices fall, the report said. There is growing concern that
Zhongrong International Trust Co., Ltd., which traditionally has large real estate exposures, has defaulted on payments on dozens of investment products since late last month, a senior official told investors.
China’s $3 trillion shadow banking sector is roughly the size of the UK economy, and concerns over the country’s huge exposure to real estate and risks to the economy as a whole have grown over the past year.
With many retail investors exposed to high-yielding trust products, a wave of defaults in the shadow banking sector could have a broad chilling effect. Without stronger government support, delayed payments could weigh on already fragile consumer confidence.
Barclays was one of a number of World Banks to cut its 2023 growth outlook for China after Tuesday’s weak economic data, citing a faster-than-expected deterioration in the housing market. It lowered its growth forecast to 4.5% from 4.9%.
China has so far largely avoided spillovers from the real estate sector’s debt pressure to its $57 trillion financial industry, despite a growing number of developers unable to meet their repayment obligations.
But news of new defaults has raised concerns about contagion.
Adding to the woes was China’s new home prices falling for the first time this year in July, the latest in a string of lackluster data highlighting the urgency of bold policy support.
Prices nationwide fell 0.2 percent month-on-month and 0.1 percent year-on-year, according to Reuters calculations based on data from the National Bureau of Statistics (NBS).
But outside the country’s big cities like Shanghai and Beijing, the situation is much worse. The average new home price in the smallest 35 cities surveyed by NBS fell in June from a year earlier for the 17th straight month.
A worsening debt crisis for major developers, including Country Garden (2007.HK), the country’s largest private developer, has terrified many homebuyers as property investments, home sales and new construction contracts have continued for more than a year. there is
Given that the property market has traditionally accounted for about a quarter of China’s economy, some analysts say the downturn, combined with the shock of three years of draconian coronavirus measures, has slowed economic activity. said to have had an unprecedented impact on
Most analysts expect further declines in home prices and sales in the coming months.
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Tuesday’s data added to weaker economic data in recent months, prompting calls from China watchers for more bold supportive measures from officials to halt a downward spiral.
Gerwyn Bell, lead economist for Asia at PGIM Fixed Income, said Country Garden’s woes underscore the untamed fallout from the property market crash, which is spreading across the economy. .
“Stopping the negative impact from real estate will require significantly larger fiscal stimulus than the authorities have done to date. We expect the Chinese authorities to reach a similar conclusion soon. are doing.”
“mitigation measures”
China’s property sector continues to struggle despite extended financial support for developers and incentives for first-time homebuyers and upgraders.
In 49 of the 70 cities, new home prices fell month-on-month in July from 38 cities in the previous month.
Last month, Chinese leaders pledged to adjust property policies at a Politburo meeting.
Housing regulators are also encouraging efforts to support the sector, including lower mortgage rates and down payment ratios for first-time homebuyers and easing mortgage limits for those looking to upgrade their homes. .
Some cities, such as Zhengzhou, have already eased some property restrictions to boost sentiment. Provincial capitals such as Xi’an and Fuzhou are considering lowering the down payment percentage for residents buying a second apartment.
“We continue to expect further housing easing measures in the coming months, including further reductions in down payment ratios and further easing of home purchase restrictions in major cities,” Goldman Sachs economists said in a note to clients. Stated.
But most economists expect home sales and home prices to remain low for some time.
“The high-frequency data for early August did not suggest a significant improvement in the property market,” said Wang Tao, head of Asian economies and chief China economist at UBS Investment Bank.
“Without further significant policy easing and fiscal support, property sales and investment could be even weaker, or remain at bottom for longer than assumed in the baseline,” Wang said.
Reporting by Qiaoyi Li, Liangping Gao, Jason Xue, Ziyi Tang, and Ryan Woo. Additional reporting by Matt Tracy in Washington and David Barbushia in New York. Written by Sumeet Chatterjee.Editing: Sam Holmes, Sri Navaratnam, Kim Kogil
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