[Finance and Business World]The CCP’s Bailout Ineffective Real Estate Confidence Collapse | Debt Crisis | Death Spiral | Shanghai Shimao

[Epoch Times, January 15, 2022]Under the CCP’s strict regulation of “housing, not speculating,” the mainland real estate industry cooled down rapidly last year. Not only did land auctions get cold, but real estate companies such as Evergrande exploded in succession, and there were even unprecedented cases in history. The biggest real estate outage. Although the government’s control policy was relaxed in the fourth quarter, and local governments are trying their best to save the market, but now, they have achieved little and the real estate market is still sluggish. It is even predicted that China’s economy will enter a “death spiral”, and the default of real estate developers such as Evergrande is just an “appetizer”. Around July this year, the debt explosion will collapse like a domino. What is even more frightening is that it may also be It will affect many international government consortia.

So, what measures have the Beijing government adopted to save the market, and why are they ineffective? What is the biggest problem in the real estate industry right now? What’s worse?

Real estate sales slump, real estate companies explode in succession

Last year, China’s real estate market cooled rapidly, but after entering this year, the situation has not improved.

“Securities Times” reported that last year, the performance of China’s top 100 real estate companies rarely experienced negative growth. The cumulative sales volume fell by 3.5% year-on-year, and more than 80% of the real estate companies failed to achieve their annual sales targets.

During the New Year’s Day this year, the real estate sales market remained sluggish. The January 7 report of the China Index Academy showed that the transaction area of ​​newly built commercial housing in the cities it focuses on monitoring fell by 42% year-on-year. Among them, the transaction scale of first-tier cities dropped by more than 20%, and the representative cities of second-, third-, and fourth-tier cities dropped by nearly 60%, which shows that buyers have a strong wait-and-see mood and lack confidence in the market.

To this end, local governments are still trying their best to introduce various rescue measures. The “Daily Economic News” reported on January 12 that in the past half a month, at least seven cities including Baoding, Kunming, and Changchun have announced relevant policies involving housing subsidies. Among them, the highest housing subsidy amount for industrial talents in Zhuhai, Guangdong reached 6 million yuan.

At the same time, the debt crisis of Chinese real estate companies is still fermenting.

We saw that on January 5, the real estate company “Modern Land” was confirmed by Fitch as a “restricted default” because it failed to repay its USD 250 million debt as scheduled. On January 10, Modern Real Estate received a notice from creditors requesting early repayment of US$1.348 billion of the company’s overseas debt, causing its share price to plummet by 40% that day.

The Shanghai-based Shimao Group also broke the trust default, and both Standard & Poor’s and Moody’s downgraded Shimao’s credit rating on January 10. At present, Shimao Group is accelerating the sale of assets to cash out, and Shimao’s debt crisis is more worrying to the industry than Evergrande’s crisis. Why is this? We have seen that Bloomberg once analyzed in December last year, “Shimao’s fall may be ‘much worse’ than Evergrande,” because Shimao has always been considered a relatively healthy company in the industry, and the holders of Shimao’s bonds are not willing to default. The tolerance is far lower than that of investors in bonds such as Evergrande. Some bankers said that if high-quality companies like Shimao cannot survive the crisis, global confidence will be lost forever.

In this way, it is indeed a bit worrying, because Chinese real estate companies are ushering in the peak of debt repayment, and the risk of default is still increasing.

Nomura Securities said that in the first half of this year, the scale of offshore dollar bonds maturing in each quarter was almost double that in the fourth quarter of last year. On top of that, there is about 1.1 trillion yuan ($172.657 billion) in unpaid wages for construction workers, which must be paid by the end of January this year, before the start of the Chinese New Year holiday.

Reuters also quoted UBS’ analysis as saying that the next three to four months will be the peak period for real estate companies to repay their debts, and unless there is a stronger policy easing, defaults will continue.

The CCP’s bailout is ineffective, and real estate confidence collapses

So, how is the CCP going to save the market?

In December last year, the Central Bank of the Communist Party of China and the China Banking and Insurance Regulatory Commission jointly issued the “Notice on Doing a Good Job in M&A Financial Services for Risk Disposal Projects of Key Real Estate Enterprises”, and held symposiums for some private and state-owned real estate enterprises and major commercial banks. On the other hand, it is hoped that large banks and joint-stock banks can actively provide M&A loans for the acquirers. At the same time, it also said that real estate companies that have risks and difficulties should not withdraw or cut off loans.

At that time, there were also media reports that the real estate industry may usher in a wave of project mergers and acquisitions. But now it seems that this policy has not played any role, so the “explosions” of real estate companies are still continuous.

It could also be because the real estate sector is so bad that the market is paying particular attention to any “good” measures.

For example, on January 10, many real estate stocks rose in a straight line, and Shimao shares rose by the daily limit. The reason is that at that time, it was reported that 9 central and state-owned enterprises were required to provide liquidity support for 11 private developers with medium and high risks, such as Greenland Holdings, Sunac China, and Shimao Group, through acquisitions and mergers and acquisitions of project assets. However, according to the report of “First Finance and Economics”, there are different opinions in the industry about the authenticity of the news. Many real estate companies on the list denied this statement, and only a high-level person from one real estate company said the news was true.

Two days later, that is, on January 13, as a real estate company confirmed that M&A loans of out-of-risk real estate companies were no longer included in the “three red lines”, the real estate sector had a daily limit for many stocks. However, Reuters analyzed as early as January 7 that this policy may have limited effect.

A senior executive of a state-owned bank said that only good M&A projects will be provided for the bank to provide financial support, but the key issue at present is whether there are good M&A projects. A person from the investment banking department of a securities firm believes that the banks are interested in the developers of the central enterprises, but the current merger and acquisition impulse of the central enterprises is not strong. Do you want to acquire second-hand projects?”

Therefore, the CCP’s “rescue” measures have not been successful at present, and they will hardly be effective in the future, because the biggest problem in the real estate industry now is the lack of confidence. After a number of housing companies defaulted last year, both financial institutions and house buyers have completely collapsed their confidence in developers.

We know that the importance of real estate to China’s economy is self-evident. As you can imagine, if the debt crisis in China’s real estate gets out of control, what will happen next? The consequences are unimaginable.

On January 9, Pincong.com published an article, which attracted a lot of attention. The article said that 2022 is the prelude to the outbreak of the full-scale debt crisis. Last year, the series of defaults by Evergrande and other real estate developers were only “appetizers”. Evergrande was already doomed, and around July this year, it was the series of debts. Entering the stage of the collapse of dominoes, which may affect many international government consortia.

The article “Top Ten Forecasts for China in 2022” made predictions on the economy, diplomacy, population and other aspects, and emphasized that these conditions are bound to happen.

We see that the first prediction is that China’s economy will enter a “death spiral”, that is, “debt will continue to rise, but the economy will not grow”, because the leverage ratio of the Chinese economy and the government debt ratio are extremely high, more than ever Big groups go beyond that.

Other economic forecasts include: GDP growth this year will be around 2%, and the Bureau of Statistics data will not exceed 3%; serious inflation will occur around July; A-shares will enter a state of “three exhaustions” this year. It may reproduce the trend of 2018, etc. The forecast also said that 2022 can only be regarded as the “year of the big trough”, and it is estimated that the real big crisis will not appear until 2025 and 2026. In fact, many predictions in the article, including large-scale unemployment and salary cuts for civil servants, and the CCP’s “excessive extortion” model, are currently being staged. As for how many other predictions can actually become reality, it will take time. inspection.

However, there is one thing that convinces me that although 2022 is tragic, it is just the beginning, and China is entering a “great trough era”. In fact, this has also been confirmed by the speech of the Chinese Premier Li Keqiang. On January 10, when presiding over the executive meeting of the State Council of the Communist Party of China, Li Keqiang said that “the current economic operation is at the juncture of climbing a hill”. Highlighting the embarrassment of China’s economy, it seems that nothing can be changed.

Institute of Financial and Commercial Economics
Planning: Yu Wenming
Written by: Li Songyun
Editor: Yu Wenming
Edit: Song
Producer: Wen Jing
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Responsible editor: Lian Shuhua#