SINGAPORE- Beijing is giving Chinese banks another nudge to persuade them to play the property white knight. Regulators including the People’s Bank of China are drafting a “whitelist” of 50 property developers, including state-backed China Vanke and fully private ones like Seazen and Longfor Bloomberg reported citing unnamed sources. The move seems aimed at giving financial institutions more confidence in lending to the struggling sector. It’s unclear whether more distressed players like Country Garden would be included. More importantly, barring specific lending targets, banks are likely to remain in wait-and-see mode because they fear getting stuck with a mountain of bad loans.
A 50-name-long whitelist would be the widest net cast by policymakers so far, reflecting the intense pressure to prevent a rout as housing sales continue to slump. Such unofficial lists have been widely circulated before without great success. Last December, Chinese banks pledged new credit lines worth around 3 trillion yuan ($424 billion) to a dozen developers deemed worth saving, following a similar effort by Beijing. It didn’t prevent the then white-listed Country Garden and others from slipping into restructuring this year.
The draft also follows a Friday meeting where regulators asked banks to ensure that loan issuance to private builders “grows at the same rate as the industry average”, according to Bloomberg. But at a time when China’s outstanding property loans are contracting, such vaguely worded guidance loses relevance. The drip-drip of support is better than nothing. But the risk is that few play along.
China’s direct interventions to ease a cash crunch 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 shore up demand in the sector.
The extended slump in property sales, investment, and home prices last month has piled more pressure on authorities to step up efforts to prevent contagion across the broader financial sector.
China’s economy has struggled to get back on solid footing despite the lifting of strict COVID curbs late last year, largely because the property sector has stumbled from one crisis to another in a major blow to consumer and investor confidence.
Rescuing select developers will not be enough in itself to cushion the economic impact of the downturn, analysts say, arguing that Beijing should consider supplementing it with other steps, including boosting fiscal spending and further loosening of monetary policy.
Beijing needs to pull “multiple levers” at the same time to address the “vulnerabilities” in the financial system, local government financing, as well as consumer sentiment, said Edward Al-Hussainy, head of emerging market fixed income research at Columbia Threadneedle, 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.
Shoring up confidence is the biggest challenge facing Beijing and is key to getting homebuyers spending again, which analysts says isn’t likely to happen soon given an uncertain economic outlook.
Investors got a brief respite last week after the largest state-owned shareholder of China Vanke stepped in to back the country’s No. 2 developer, with over $1.4 billion of “market tools”.
Separately, Reuters reported last week that the central government was working on a plan to bail out property giant Country Garden whose worsening financial woes have renewed concerns about broader contagion risk.
