Property Market Chartbook, July 2021

After this week’s market turmoil, investors looking for what sector might fall next into Beijing’s regulatory crosshairs should direct their attention to the property industry. Recent policy signals have reinforced tightening messages, consistent with Beijing’s consumer welfare-centric policy actions in recent months. New starts, land sales, and construction momentum continue decelerating, but sales volumes continue growing. Credit events within the sector are becoming more frequent with markets heavily focused on the fate of Evergrande, China’s largest developer.

Posted July 29, 2021
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LGFVs: Playing a Losing Game

We conducted a detailed survey of the 2020 financial results of 2,760 local government financing vehicles (LGFVs). The details show dramatic reductions in operating profit and returns on assets, as well as these firms’ increasing reliance on subsidies and debt growth to maintain financial health. This year, rising credit market pressures and policy changes from Beijing reducing funding options are amplifying LGFVs’ financial stress. Local governments themselves want to support their financing platform companies, but many lack the capacity and resources to do so. As a result, LGFV defaults within domestic markets are inevitable. The key questions are when implicit guarantees on these firms will break, and how financial markets will react to the fallout.

Posted July 28, 2021
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Masks Off

Recent days have seen a series of sudden, market-roiling regulatory moves by Beijing. These developments come amid a months-long crackdown on private businesses—from last November’s canceling of the Ant Financial listing to the past weekend’s order banning education companies from raising capital. Put together, these moves send a clear signal of both ideology directed against the private sector and a consequent reduction in China’s future potential growth.

Posted July 28, 2021
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