As cash crunch for developers worsens, so does the housing slowdown that has become one of the biggest drags on the country's economy
ALMOST exactly a year after China's property market debt squeeze sparked the first in a wave of defaults by developers, the industry is fighting for survival.
Home sales continue to plunge and elevated borrowing costs mean offshore refinancing is off the table for many developers. Global agencies are pulling their ratings on property bonds, while a string of auditor resignations is adding to doubts over financial transparency only weeks before the earnings season. An 81 per cent stock plunge in Zhenro Properties highlighted the risks of margin calls as companies struggle to repay debt.
Yu Liang, chairman of China Vanke - one of the country's largest developers - urged staff to prepare for a battle that could make or break the firm, according to the South China Morning Post, which cited an internal document from last month. "We are on our last legs, which means there are no other options," he said.
A Bloomberg index of Chinese junk dollar debt fell every day last week through Thursday (Feb 17), driving yields above 20 per cent. A gauge of Chinese property shares was down 3.4 per cent last week, taking its losses over the past 12 months to 28 per cent, even after rallying last Friday.
As the cash crunch for developers worsens, so does the housing slowdown that has become one of the biggest drags on China's economy. Attempting to deflate a speculative market is a risky strategy that - if uncontrolled - could threaten Beijing's pledge to prioritise economic stability this year. Regulators have quietly tweaked some rules to engineer a soft landing for the property industry, such as encouraging mergers and acquisitions, but so far officials have refrained from any substantive easing of curbs.