Reforms risk another wave of excess
The country’s officials are currently redesigning policy on a vast scale. The government hasits “zero-covid” approach to the pandemic, while simultaneously signalling an end to a crackdown on technology firms. Policymakers are also trying to rescue the property sector. After two years of forcing developers to deleverage—which has pushed dozens to default on debts—regulators are now abandoning many of these measures in the hope of reviving sentiment. This has prompted a measure of optimism.
Companies began rapidly raising new debt in December—a sign that policy easing kicked off well before the government announced the new measures. Local authorities have been lowering mortgage rates, and many are now at record lows. The state’s bail-out funds are targeting unfinished construction. About 60% of homes sold between 2013 and 2020 are thought not to have been delivered to buyers, many of whom have nevertheless started to make payments.
The plan is showing some early results. Home completions rose by 6% year on year in December, after diving 18% the month before. This is a closely watched measure: unfinished homes prompted homebuyers to boycott their mortgage payments last year, as part of a wave of protests. The reforms have been aided by the lifting of covid-19 restrictions. A few weeks before the policy changes, moving about in Chinese cities carried the threat of quarantine.
A few foreign investors have been encouraged by the state’s plan. Firms have almost entirely been shut out of the offshore bond market, where many global asset managers and hedge funds are trying to recoup losses following missed payments. The funds raised by developers fell by a quarter last year compared with the year before.
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