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China’s Property Bailouts: Quiet or Loud?

In the absence of a declared bailout or workout for Evergrande, contagion is spreading throughout China’s property sector. With Fantasia missing bond payments on Monday, and Evergrande’s sales declining and asset disposals accelerating, questions now focus on the steps Chinese authorities will take to save other property developers or minimize the fallout from defaults on the broader economy. Beijing must act, but the question remains how Chinese authorities will do so.

Quiet bailouts and restructurings are probably the preferred policy tools, but they may fail to contain contagion to the rest of the property sector. Announcing clear workout and restructuring plans can help to restore confidence in the rest of the property market, but risks backfiring if policy support is viewed as insufficient, or a sudden reversal of previous messages. Risks are clearly tilting in the direction of Beijing acting quietly, and late, extending the slump in China’s property market.

Posted October 9, 2021
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