- There has been growing momentum for a property bailout in China
- China HY Property bonds have recovered all the ground lost due to the default of CIFI Group
- The People's Bank of China will provide over AU$50 billion of support to the sector
Over the past year or so, there has been growing momentum for a property bailout in China.
Many will recall concerns with Evergrande last year, which some commentators feared would trigger a GFC-like event. Evergrande’s chairman also briefly owned one of the most expensive houses sold in Sydney.
Heck, even 15 skyscrapers that had been sitting unfinished for eight years were blown up last year.
China HY Property bonds have recovered all the ground lost prior to the September 2022 sell-off triggered by the default of CIFI Group, which was unforeseen.
This all started last week with China’s 20 new measures to optimise its Covid-19 response.
Subsequently, the People’s Bank of China (PBoC) has announced it will provide financial aid to the tune of ¥250 billion (AU$52.23 billion) to support RMB bond issuance by private-owned enterprises.
“A notable addition vs. past funding support is the allowance of entrusted institutions to buy RMB bonds as a supporting mechanism, effectively providing a financial backstop to the liquidity crisis in the onshore market,” said Robin Usson, Senior Credit Analyst at Federated Hermes.
“Additionally, over the weekend, the PBOC and CBIRC issued a 16-point rescue plan, which was then followed by the long-anticipated relaxation in escrow account control by the CBIRC.
Robin Usson, Senior Credit Analyst at Federated Hermes
“Commercial banks can now issue letters of guarantees to “high quality” developers, which would allow them to withdraw 30% of the cash necessary for construction completion.
“The funds withdrawn can be used either for construction or project-related debt repayment.
“However, the key to a sustained rally lies in the recovery of the physical markets which is closely linked to consumer confidence which in turn has been heavily correlated with the immutable zero-covid policy.
“Any signs of recovery in the physical market over the next few months will determine whether this rally has legs.”
