Beijing is attempting to mitigate widespread financial distress in the property sector by encouraging mergers and asset sales by distressed developers, usually to stronger state-owned peers. But state developers only have a small presence within the industry, and are constrained in how much assistance they can provide for the sector as a whole. Only a limited number of distressed private developers can plausibly receive lifelines.
We estimate that for the entire property industry, state-owned developers could only increase their debt levels by around 1.6 trillion yuan, which is far less than the cash needed to offset the current decline in property sales and continue construction at close to 2021 levels. SOE developers are not trying to rescue their private competitors, but to profit from fire sales of quality assets, as recent deals have fetched deep discounts.
