China property stocks rise as Beijing tries to ease Evergrande turmoil

Chinese property stocks jumped after Beijing signalled its first substantial policy loosening since the early days of the coronavirus pandemic, in an effort to reassure investors bracing for the possible default of developer China Evergrande.

The Hang Seng Mainland Properties index rose by as much as 4.1 per cent on Tuesday after the country’s central bank said it would free up Rmb1.2tn ($188bn) of liquidity for the banking system by cutting the share of deposits financial institutions must hold in reserve by 50 basis points.

The Chinese Communist party’s politburo also pledged to maintain a proactive fiscal policy and “flexible” monetary policy in the coming year, according to state media.

Those official announcements came after Evergrande, the world’s most indebted developer, announced last week that it would struggle to meet $260m in previously undisclosed obligations, sending its shares tumbling to an all-time low on Monday.

Evergrande must also meet a deadline for overdue debt repayments totalling $82.5m or risk triggering a formal default.

The total $343m due is equivalent to the value of shares sold late last month by Evergrande chair Hui Ka Yan, a transaction that reduced his stake in the group to 68 per cent from 77 per cent. Evergrande has not said if Hui would use the proceeds to help pay down its debts.

The company’s shares rebounded as much as 8.3 per cent on Tuesday morning after announcing the establishment of a risk management committee with members from large state-controlled companies.

“The key question on investors’ mind is whether the government is willing to change its policy stance on the property sector, how much will be changed and whether a change of stance can really help to turn the sector around,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management.

The cut to the banks’ reserve requirement ratio sent the Hang Seng China Enterprises index up by 1 per cent on Tuesday.

But analysts were sceptical that the measures would feed through to the real economy and property sector quickly after new data showed China’s property slowdown worsened last month.

“We expect liquidity to bottom out in the second quarter of 2022 at the earliest,” said Griffin Chan, a China property research analyst at Citigroup. He added that any easing would mostly benefit safer players in the real estate sector rather than those in urgent need and was “likely not enough” to offset property sales shortfalls.

November sales for China’s largest developers have dropped almost 40 per cent compared with a year ago, according to results from a survey by China Real Estate Information Corp. Data from the China Index Academy showed new residential property prices across 100 big cities dropped marginally on average after posting a slight rise in October.

“The real estate sector is likely to continue to be a major drag on growth as regulation stifles housing sales and new property investment,” said Xingdong Chen, chief China economist at BNP Paribas.

But he added that Chinese authorities were likely to set an official growth target of 5.5 per cent for 2022 and “introduce strong policy stimuli to get there” at the party’s annual economic planning meeting this month.

Additional reporting by Xinning Liu in Beijing