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Property: Sink or Swim

As protests rage outside Evergrande offices around the country, China’s property market faces a critical test in the next six weeks, as the year’s peak sales season looms. Under pressure from Beijing’s tightening measures, property developers have been cutting prices and reducing new construction, contributing to a slowdown in cyclical economic indicators. Many developers have faced ratings downgrades and these firms’ offshore hard currency bonds have sold off aggressively.

Beijing’s policy stance toward the property sector is harsher than can be sustained over the long term, because Chinese authorities are trying to send clear messages to speculators that controls will not ease even if the economy slows. If sales continue declining, however, developers will have no choice but to limit construction, weakening cyclical indicators and economic growth, and risking financial contagion from a broader downturn in the property market. That scenario may ultimately force Beijing to provide support, but authorities are likely to be reactive to stress rather than proactive in averting it.

Posted September 15, 2021
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