Extract from our "An Update on the China Property Sector" research paper, published on the 24th August 2023. Register for a free trial* to access the full paper.
China’s property sector is big, but not overwhelmingly big, compared to the cycle that Japan had in the late-1980s: on some measures, Japan’s property bubble was 30x that of China’s. The trigger for the current malaise in the property sector was proactively induced by policies: Beijing wanted to prevent the property bubble from growing further to put China in a dire straits similar to Japan a generation ago. As the property sector faces an intentional liquidity crunch, the government has remained steadfast in not giving the sector regulatory relief or credit relief. This has surprised investors, including ourselves: we had thought that the government would at least calibrate its regulatory policies so as not to undermine general confidence. As it stands now, we believe Beijing might continue to exert pressure on the property sector or at least withhold muscular stimulus until the risks of a bubble are purged. The uncertainty for investors stems from how much longer Beijing will ‘hold-the-head-under-water’ for this sector. In our view, an implosion of China’s economy – which is becoming a popular narrative is not at all preordained: Beijing is still in control of how much pain is inflicted on the property sector. In the meantime, however, some private property developers (such as Country Garden) will likely not be rescued by the government. We believe that Beijing’s pain threshold is higher than that of the economy, but are not certain by how much. In any case, there is a threshold, and when it is breached, there will certainly be remedial policy actions from Beijing, we believe, to stem the descent of the property sector and the economy in general.
The full report contains the following sections:
- How important is the property sector in China?
- What are the recent performance stats of this sector?
- What are the recent performance stats of this sector?
- How good are the data for the property sector in China?
- What were the three red lines for the property sector?
- Why did the three red lines matter?
- Are SOEs in better shape than POEs?
- Country Garden (Cogard): what is the situation?
- Are property companies trying to complete the ongoing projects?
- How is the trust default crisis related to real estate?
- What do we know about the defaults that have happened so far?
- Will China follow the footsteps of Japan in the 1990s?
- Is China overly-indebted?
- Why has the government been so reluctant to provide policy stimulus?
- How would a slowing China impact the rest of the world?
- Bottom line
* Access to a free trial of our research is limited to professional investors. Terms & Conditions apply.
Find out more about our research service by clicking on the brochure below:
Apply today for a FREE trial of our research service, and start receiving our insights. A trial of our research will enable you to:
- Establish a robust intellectual partnership and leverage our forward-thinking approach to gain unique, accessible insights into complex market issues, enhancing your investment strategies.
- Access a team of leading FX experts, economists, and strategists to deepen your understanding of the macroeconomic landscape, empowering you to identify potential risks and opportunities.
- Stay ahead of the competition with our expert analysis and insights, increasing the potential for improved investment decision-making and enhanced risk management.
Sign-up for a FREE Trial*
*For professional investors only, subject to terms & conditions. By submitting your details, you consent to your data being collected and stored for the purposes of Eurizon SLJ Capital Limited providing information regarding your enquiry and related services. If you have any questions about your data please contact us at research@eurizonslj.com
Subscribe to our insights
If you are interested in our content, please sign up below and we will deliver Eurizon SLJ insights right to your inbox.
I consent to my data being collected and stored for the purposes of providing me information regarding my enquiry and related services. If you have any questions about your data please contact us at research@eurizonslj.com
Sources
Disclosure
This communication is issued by Eurizon SLJ Capital Limited (“ESLJ”), a private limited company registered in England (company number: 09775525) having its registered office at 90 Queen Street, London EC4N 1SA, United Kingdom. ESLJ is authorised and regulated by the Financial Conduct Authority (FRN: 736926). This communication is treated as a marketing communication intended for professional investors only and is provided only for information purposes. It has not been prepared in accordance with legal and regulatory requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. It does not constitute research on investment matters and should not be construed as containing any recommendation, advice or suggestion, implicit or explicit, with respect to any investment strategy or financial instruments, or the issuers of any financial instruments, or a solicitation, offer or financial promotion relating to any securities or investments. ESLJ and its affiliates do not assume any liability whatsoever for the contents of this communication, save to the extent agreed in any written contract entered into between ESLJ and the recipient, and do not make any representation or warranty as to the accuracy or completeness of any information contained in this communication. Views are accurate as at the time of publication. Opinions expressed by individuals are their own and do not necessarily reflect those of ESLJ or any of its affiliates. The value of any investment may change and an investor may not get back the original amount invested. Past performance is not an indicator of future performance. This communication may not be reproduced, redistributed or copied in whole or in part for any purpose. It may not be distributed in any jurisdiction where its distribution may be restricted by law and persons into whose possession this communication comes should inform themselves about, and observe, any such restrictions.
ESLJ-311023-I1
