China is currently easing credit to its real estate sector after years of restraint. A package totaling 200 billion yuan, roughly 26 billion euros, has been approved to steady the sector as liquidation processes intensify. The measure, announced by the Ministry of Housing, aims to give indebted developers a breathing space so they can complete promised homes and reduce social unrest that worries Beijing.
The order envisions about 6,000 projects that could receive support from commercial banks following coordinated negotiations by local governments. This is not a new move, but it is the largest to date, multiplying sevenfold the amount approved in the last round. The step follows the second meeting in just ten days of the sector watchdog, underscoring urgency and severity.
The value of new housing fell by 60 percent last month compared with the same period a year earlier, according to data from the top 100 developers. Home purchases have plummeted as buyers fear that projects may stall. Some estimates put unfinished homes in the tens of millions, while others speak of around 1,200 projects valued at about 604 billion yuan (77.7 billion euros).
The industry is grappling with a steady stream of troubling headlines. Reuters reported that Deutsche Bank is about to file for liquidation of another developer, Shimao, in a Hong Kong court. A dozen such petitions have already been filed in the former colony and in overseas courts against Chinese property companies.
Earlier this week, Country Garden, once the largest national developer, faced default in October after accumulating debts of 32.3 billion euros. The company has lost about 96 percent of its peak market value and insists that legal actions will not disrupt normal operations or the delivery of homes, though skeptics remain about the impact of litigation on its business.
Evergrande’s Case
Country Garden had stepped in as the dominant national developer when Evergrande ran into trouble. A Hong Kong court ordered the liquidation of the sector’s best-known symbol last month after a year and a half of proceedings and seven deferrals. Analysts view this as the culmination of a dramatic cycle of defaults and the prior imprisonment of its chairman. Neither the asset sales frenzy, ongoing creditor negotiations, nor a Deloitte study that projected only a 3.4 percent recovery in a full liquidation could avert the liquidation path. Experts say this surge in liquidation petitions will push developers to speed up debt restructuring and offer creditors more attractive proposals.
In mainland China, most debts lie, but enforcement avenues are scarce. Hong Kong justice serves as an alternative, yet the route is rocky. The “one country, two systems” framework allows mutual recognition of civil and commercial rulings, but Beijing authorities have rarely allowed domestic execution of Hong Kong liquidations. As a result, any confiscation of domestic assets hinges on policy shifts and loosening capital controls to permit funds to move out of China.
The sector’s pain began after the government curbed credit growth in 2020 to curb excessive debt. The pandemic then crushed demand. Buyers, convinced that housing prices would stay high and with few alternative investments, pulled back sharply. Today, the aim is less about reviving the sector’s former splendor and more about ensuring promised homes are delivered while containing broader economic fallout.
[Attribution: Reuters] The present liquidity measures are designed to stabilize the market and reduce spillover effects, with the understanding that a smoother path for restructuring could unlock further investment and confidence in the housing market.