December 9, 2022
China Surprise Policy Shift

In the strongest evidence yet that President Xi Jinping is shifting his attention toward shoring up the world’s second-largest economy, China issued sweeping directions to rescue its property sector, adding to a dramatic recalibration of its pandemic response.

According to persons familiar with the situation, financial authorities published a 16-point plan to strengthen the real estate market on Friday, with steps ranging from easing developers’ liquidity issues to lowering down-payment requirements for consumers.

Separately, authorities announced Monday that they are letting developers access more revenue from home presales. The initiatives coincided with the National Health Commission’s 20-point plan aimed at decreasing the fiscal and societal costs of limiting Covid.

Xi’s government’s key policy reforms are likely to boost China’s economic prospects and fuel a market rally that began this month, albeit considerable challenges for the economy and the property sector are likely to persist.

On Monday, Chinese developer stocks and bonds surged. A Bloomberg Intelligence index of homebuilder stocks rose 14%, bringing the month’s gain to 55%. Country Garden Holdings Co. increased by 46%. According to traders, high-yield dollar bonds climbed at least 5 cents on the dollar, led by developers such as Longfor Group Holdings Ltd.

It’s a sharp contrast to the melancholy that descended on markets in late October, following Xi’s elevation of close associates during the Communist Party Congress, which fueled fears that ideology would conquer pragmatism for China’s most powerful leader since Mao Zedong.

The Hang Seng China Enterprises Index has now recovered losses sustained in the aftermath of the meeting, moving from one of the world’s worst-performing stock indices to one of the best. “It’s a significant relaxation,” said Larry Hu, Macquarie Group Ltd’s head of China economics.

“It appears that policy space has expanded on a variety of fronts following the Party Congress, especially for the two major headwinds to the Chinese economy: Covid Zero and property.”

The revisions come as Xi prepares to visit US President Joe Biden on the sidelines of a Group of 20 summits on Monday, the first in-person meeting between the two leaders since the outbreak began.

According to senior Treasury Department sources, Treasury Secretary Janet Yellen will demand information on China’s Covid lockdown rules and the problematic property market during a meeting with central bank Governor Yi Gang this week.

According to the people who asked not to be identified because the matter is private, the People’s Bank of China and the China Banking and Insurance Regulatory Commission jointly issued a notice to financial institutions on Friday outlining plans to ensure the “stable and healthy development” of the property sector.

Developers’ outstanding bank loans and trust borrowings due within the next six months can be extended for a year as part of the rescue plan, and repayment on their bonds can also be delayed or swapped through discussions, according to the sources.

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