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China's Widening Property-Sector Support Takes Aim At Balance Sheets

HONG KONG (S&P Global Ratings) Jan. 18, 2023--Beijing's support for the country's beleaguered property sector is broadening. S&P Global Ratings believe steps to stimulate demand and allow equity raising will help developers repair balance sheets.

"The government's ever-widening policy support should help property firms restore health to their balance sheets and revitalize distressed projects," said S&P Global Ratings credit analyst Fan Gao.

The Chinese government has signaled it is increasing the breadth of its support. On Jan. 10, 2023, the People's Bank of China and the China Banking and Insurance Regulatory Commission jointly held a seminar with major banks, discussing the direction of lending in the country.

The seminar prominently featured property developers. The regulatory bodies subsequently drafted 21 "tasks" to "improve the balance sheets of quality developers." Officials did not clarify which developers they deemed to be "quality." Notably, they defined such companies broadly: they must focus on property as their core business, comply with regulations, be well qualified, and be of systemic importance. In our view, the action points suggest that support may no longer be confined to developers with no defaults in their record.

"While the 21 action points cover a lot of the same ground of previous policy announcements, the involvement of two high-level central bodies and detailed action plan indicate Beijing has made the recovery of the property sector a policy priority," said Ms. Gao.

Such steps would be consistent with the government's aim to ensure project delivery. Indeed, buoyed by recent liquidity loosening, we have seen progress on some distressed developers' stymied projects. For example, the state-owned China Resources Land Ltd. bought projects from the China Fortune Land Development Co. Ltd. in December 2022, thus bringing the projects back to viability.

Recent government support for the sector (the "Three Arrows") have been supply focused. The first and second arrows were largely aimed at restoring liquidity to developers.

While helpful for entities, the initiatives have often just added debt. More recent actions have focused on repairing entities' balance sheets (see "China's Defaulted Developers Hope For The Best, Prepare For The Worst," published Jan. 10, 2023).

For example, recent approvals to let developers sell shares in China's domestic market are significant. This ended a 12-year moratorium on such equity raisings. Since officials granted this easing in December 2022, nine developers (both private and state owned) have announced plans to issue shares in the domestic market. This could open equity-raising channels for developers, helping them improve their capital structure and reduce excessive reliance on debt.


We believe the next round of policies will be demand-focused, aimed at restoring homebuyer confidence. National property sales were down 26.7% in 2022, according to the National Bureau of Statistics, at Chinese renminbi (RMB) 13.3 trillion.

In our view, the resumption of land-buying by developers will be an important signal that the industry is poised for recovery. Developers started 39.4% fewer projects in 2022 (measured by gross floor area), and aggregate investment in real estate development declined by 10% in 2022.

To address this slump, we expect the government will want to spark more demand over the next three to six months. This should involve extensive coordination among the many of levels of local government.

In the best scenario for the sector, supply-side and demand-side policies will seamlessly cleave together into a positively reinforcing cycle. Healthy demand would boost developers' sales expectations, prompting them to buy land.

We don't discount the scale of the problem. China's property recovery will likely be 'L-shaped', and will only begin in the second half, at the earliest. Developers' outstanding construction loans alone totaled RMB12.67 trillion as of September 2022, according to the central bank. This is a massive deleveraging project. It's not likely resolved by policies alone, at least within 2023.

"The market has to be restored through substantially improved sales, equity raisings, a series of debt restructurings, or all of the above." said S&P Global Ratings credit analyst Esther Liu. "Whatever the solution, homebuyers and investors will be key."

Editor: Jasper Moiseiwitsch

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This report does not constitute a rating action.

The report is available to subscribers of RatingsDirect at If you are not a RatingsDirect subscriber, you may purchase a copy of the report by calling (1) 212-438-7280 or sending an e-mail to Ratings information can also be found on S&P Global Ratings' public website by using the Ratings search box located in the left column at Members of the media may request a copy of this report by contacting the media representative provided.

Primary Credit Analyst:Fan Gao, Hong Kong + (852) 2533-3595;
Secondary Contacts:Esther Liu, Hong Kong + 852 2533 3556;
Lawrence Lu, CFA, Hong Kong + 85225333517;
Chang Li, Beijing + 86 10 6569 2705;
Media Contacts:Ning Ma, Hong Kong (852) 2912-3029;
Michelle Lei, Beijing + 86 10 6569 2961;

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