China wants to control its real estate sector, but market disruptions can be difficult to avoid, experts say.
World the most indebted company, Chinese real estate giant Evergrande, once again survived a slippery loan.
The company made a $ 148 million coupon payment on Wednesday at the end of the additional payment period.
The indebtedness of China’s largest real estate developer has horrified global financial markets throughout the year. The company has more than $ 300 billion in liabilities.
Insolvency would destabilize the Chinese real estate sector. Multiplier effects would destabilize the world economy.
For now however, the debts have been settled. How?
As is typical of China, says a senior economist at the Bank of Finland Riikka Nuutilainen.
“A request is made to other actors to direct emergency funding. With a call: ‘buy that part of it.’
News agency Reuters said earlier in the fall that the Chinese government has urged state-owned companies and investment firms to buy some of Evergrande’s assets. The authorities have also appointed the founder of Evergrande Hui Ka Yanin to contribute to emergency funding.
Worries in the world are still acute.
US Federal Reserve Fed warned in its report in early October that the Chinese real estate sector is plagued by risk factors threatening the global economy.
According to the report, companies in crisis in the sector are straining China’s financial structures. Problems could spill over into the United States.
“Terrible funds are being taken up by these rescue operations. It is clear that the funds could be used for more than rescuing over-indebted companies, ”says Nuutilainen.
Debts have been settled in the typical Chinese way.
Payment difficulties underlying, among other things, the upheaval in China’s economic policy.
“The interest rate crisis showed that China is no longer recovering in the same way as in the financial crisis,” says Nordea’s main asset management strategy. Antti Saari.
Even after the financial crisis, China revived its economy by building. Real estate companies expanded with cheap loan money.
Last year, regulation of the sector tightened. Borrowing was hampered and the Chinese government introduced a policy to curb the indebtedness of the real estate balance sheets.
According to the island, China is working for more balanced economic growth generated by domestic demand. At the same time, attempts are being made to control financial market risks.
“We no longer want reckless, property-driven growth. Beijing wants to make it clear that the company cannot do anything and rely on support measures. ”
China’s The message from the central government has been that, in general, the situation in the real estate sector has already improved, says Nuutilainen, Bank of Finland.
“Actually, even in the administration, no one has an overall picture of where the sector really is. It may be that too daring is a string dance, ”says Nuutilainen.
“It’s interesting to see how the central government in Pokka here is going. It’s a double-barreled thing. The government’s goal is to lower risk levels and get growth elsewhere in the future, but market disruptions can be difficult to avoid. ”
October at the beginning of the securities market, the belief in Chinese real estate companies unexpectedly recovered.
It was partly about government support for Evergrande. In addition, the country’s central bank decided to facilitate local borrowing by real estate companies. Authorities want to ensure that people who buy homes in advance do not fall into the role of victim, says Nordea Island.
On the other hand, there is hope in real estate companies that regulation will be relaxed and central government discipline will be relaxed.
“Beijing wants to make it clear that the company cannot do anything and rely on support measures.”
In the near future lies in the difficulty. Evergrande’s next interest payments are due in December. In addition Japanese bank Nomura estimates that in total, Chinese real estate companies will mature $ 20 billion in foreign bonds early next year. That’s twice as much as this quarter.
The island believes that companies in the problem sector will not repay all their foreign loans in full.
“But in part, regulation is now slack because we can’t afford too much financial hardship.”
China’s Economic growth slowed more than expected in July – September, to 4.9 per cent. Part of the reason was the discipline in the real estate sector.
In the coming years, economic growth will not come from the real estate sector if the Beijing line keeps going. According to Saari, the growth drivers of the real estate sector are certainly awaiting M&A.
“Some stay up, they eat the rest. There is still a smaller number of larger players on average, ”says Saari.
“If in any country such a mess can be handled without bigger problems, then it is in China. The control of the central government is stronger than elsewhere, and market forces are not as dominant as in the West. ”
#China #worlds #indebted #company #Evergrande #survived #loan #China #real #estate #giant #afloat