China’s largest lenders are ready to pump over $162bn of credit into the country’s property developers, as Xi Jinping’s government retreats from tight controls on leverage in the real estate sector that had sparked a property crisis.
Industrial and Commercial Bank of China (ICBC), China’s largest lender by assets, announced on Thursday it was extending credit lines totalling Rmb655bn ($92bn) to 12 developers. Other state banks including Postal Savings Bank of China have this week also unleashed new lending to the heavily indebted sector.
The lending is a significant moment for China’s struggling real estate sector, which drives more than a quarter of economic output but has been embroiled in a liquidity crisis for over a year after the default of highly-indebted developer Evergrande and many of its peers.
A cash crunch last September at Evergrande, which has about $300bn in liabilities, initiated a wider slowdown that saw land and property sales plunge nationwide. Metrics across the industry continued to decline last month.
The new government lines of credit largely target developers that are seen as stable and have avoided the worst of the crisis. They include Vanke, Gemdale, Greenland Holdings and Country Garden, the biggest in China by sales.
Beijing has up until this point stopped short of unleashing any major injection of fresh capital into the property sector, focusing instead on the completion of thousands of residential projects that had been severely disrupted by the crisis.
ICBC said its loans would support “project developments” as well as “merger and acquisition deals”, suggesting that the funds may be used to consolidate assets currently still on the balance sheets of struggling developers elsewhere.
The state banks’ loans come after a support package last week that was widely interpreted as a turning point for the sector. The 16-point property relief plan, which eased deadlines for maturing bank debt and supporting bond issuance, was officially published by the central bank on Wednesday.
The state bank support will revive the confidence of the cash-strapped sector, said Yan Yuejin, research director of E-house China Research and Development Institute in Shanghai.
“So far the support is still leaning towards quality and financially stable companies,” Yan said. But he predicted that “an expanded list of developers, likely ranking from top 20 to 70 by sales, will gain more support from financial institutions from late November to December after this round of state push”.
“We expect the fundamental indicators of the real estate industry in 2023 to be steady overall,” said Zhang Yu and Li Hao from CICC.
“In 2023, national home sales may grow 2 per cent year on year, while real estate investment may recover at a slower pace than sales and may be flat or down slightly from a year ago,” they said.
