Deputy Chief of China’s Ministry of Housing and Urban-Rural Development Dong Jianguo said at an economic seminar on Wednesday that the government will “implement policy support” to “meet the reasonable financing demand of developers” and “support developers with short-term cash flow troubles.”
His remarks were among the first signals that China is planning a bailout for its beleaguered real estate industry.
China’s state-run Global Times carefully avoided words like “bailout” but said the regime in Beijing is paying “intense attention to defusing financial risks in the sector.”
Dong spoke of programs to keep honest real estate developers operating even after they default on their debts, which is just another way of saying “bailout”:
During the annual meeting, Dong noted that developers that have violated the law, defaulted on debt or been unable to keep operating, should be eliminated in accordance with market rules, which is the result of the survival of the fittest in the market.
“However, it was inaccurate to call debt defaults of some developers ‘collapses’ or ‘cash flow problems,'” he noted.
Debt default of a real estate developer may not directly suspend the operation of its ongoing project, said Dong, adding that using an inaccurate term to describe a debt default may cause a crisis of confidence across the market and add to enterprises’ operational burdens.
Analysts outside of China have been using the B-word since November, noting that some sort of massive cash infusion will be necessary to keep developers with empty pockets running so they can complete their construction projects and rebuild their revenue stream. Chinese consumers have grown very weary of making high-interest mortgage payments for homes and offices they cannot use.
The Global Times quoted People’s Bank of China Governor Pan Gongsheng calling on the financial sector to “strengthen coordination with fiscal and regulatory policies, proactively adapt to the major transformation of the real estate market, adhere to the principle that houses are for living in, not for speculation, and prevent the risk spillover of the real estate market.”
“Houses are for living in, not for speculation” is actually an official political slogan of the Chinese Communist Party. It was coined around 2016 when the regime grew concerned that high-rolling speculators were pushing individual homebuyers out of the market. However, it was conspicuously abandoned in July 2023, when the Politburo wanted to signal looser regulations to jolt the moribund housing market back to life. If the slogan is back, the regime is probably tired of waiting for speculators to dive back into the real estate market and stave off a crash.
Investment guru Kyle Bass of Hayman Capital Management said on Tuesday that China’s banking system is in “free fall” and stands to lose even more than the $700 billion American banks lost in the 2008 financial crisis thanks to gigantic real estate debts and developers’ bond defaults.
Bass estimated China’s real estate losses at $4 trillion or more, much of it financed through local governments that cannot shoulder huge burdens from bad loans. Local Chinese governments obtain much of their revenue from property taxes and land-use fees, so the implosion of the property sector is a double blow to their finances.
Chinese analysts predicted that the property sector will begin recovering in the latter half of 2024, while Bank of America Real Estate Investment Chief Martin Siah predicted the slump will require a “multi-year recovery timeframe.”
Siah cautioned the Chinese not to expect a “swift resolution to the real estate deals issue.” Among other factors, he noted that even with last summer’s loosening of regulations, real estate transactions are still very difficult to complete for both foreign and domestic capital.
“Investment confidence needs to return, and that will take time,” he said.
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