By Clare Jim, Davide Barbuscia and Karin Strohecker
HONG KONG/NEW YORK, November 17 (Reuters) – China’s direct interventions to ease money for crisis-hit property developers are a step in the right direction, but analysts say these actions must be complemented by stronger fiscal and monetary policies to bolster demand in the sector.
The extended slump in property sales, investmentand domestic prices last month piled more pressure on authorities to step up efforts to prevent contagion across the wider financial sector.
China’s economy has struggled to get back on a solid footing despite the lifting of strict COVID curbs late last year, largely as the property sector has stumbled from one crisis to another in a major blow to consumer and investor confidence.
A bailout of select developers will not be enough in itself to soften the economic impact of the downturn, analysts say, arguing that Beijing should consider supplementing it with other steps, including boosting fiscal spending and further easing monetary policy.
Beijing needs to pull “multiple levers” simultaneously to address the “vulnerabilities” in the financial system, local government funding, as well as consumer sentiment, said Edward Al-Hussainy, head of fixed income emarket research at Columbia Threadneedle. Al-Hussainy. which owns Country Garden bonds.
“When confidence is low, the only entity that can solve it is the government and I think the government has to solve it by being very aggressive, very visibly aggressive, with language like ‘whatever it takes,'” he said.
Boosting confidence is Beijing’s biggest challenge and is key to getting homebuyers spending again, which analysts say is unlikely to happen anytime soon due to an uncertain economic outlook.
Separately, Reuters reported last week that the central government is working on a plan to save property giant Country Garden 2007.HKwhose worsening financial woes have renewed concerns about a broader contagion risk.
Beijing has so far resisted a return to the big boom of the past, which led to a massive debt build-up that it is still struggling to eliminate, while it fears that large-scale monetary stimulus will hammer an already weakened yuan currency and intensify capital. discharges
However, Morgan Stanley said in a report this week that Beijing is likely to accelerate central government-led fiscal stimulus, focusing on rebuilding urban villages, building social housing and green capital spending.
China’s Central Economic Work Conference next month is also expected to “signal more flexible monetary policy,” it added.
The property sector plunged into an unprecedented crisis in 2021 after a regulatory crackdown to curb a debt-fueled construction boom strained liquidity in the industry and sparked defaults among developers.
Reuters reported last week that Chinese authorities questioned domestic financial giant Ping An Insurance Group 2318.HK take a driving investment in Country Garden. This report was denied by Ping An.
The Chinese authorities may be willing to allow Ping An’s Country Garden rescue to instill confidence in the sector, said Elliot Hentov, head of macro policy research at asset manager State Street Global Advisors..
“They recognize that none of the measures … such as mortgage condition easing, liquidity provision – have been enough to restore confidence, so they may feel they need one big hit,” he said, referring to the Reuters report. about saving Country Garden. a plan
“A deal could restore some investor confidence in the capital market. But restoring confidence in the property market will require people to buy a home, not bail out a company,” said Steven Xu, president of Harmonia Capital in Hong Kong.
“You have to fix the macro environment first; if you don’t earn enough, how do you buy property?,” said Xu, whose firm holds Chinese property dollar bonds.
Bloomberg News reported Tuesday that China plans to supply at least 1 trillion yuan ($138 billion) of low cost financing to the nation’s urban village renewal and affordable housing programs.
“The move, if true, indicates the regulator’s growing attitude to help the sector. We think the policy will indirectly help provide liquidity to developers,” GS-CIBM Securities head of China research Raymond Cheng.
However, further extensive monetary policy easing was needed to ease the large amount of government bonds and improve sentiment towards growth, Goldman Sachs said in a note, referring to the new financial report.
($1 = 7.2583 Chinese Yuan Renminbi)
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(Reporting by Clare Jim in Hong Kong, Davide Barbuscia in New York, Karin Strohecker in London; Additional reporting by Summer Zhen in Hong Kong and Rae Wee in Singapore; Editing by Sumeet Chatterjee & Shri Navaratnam)
((clare.jim@thomsonreuters.com;))
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