PRC's property contagion spreads to “investment-grade” firms, France calls treatment of Uyghurs "genocide" & Slovenia becomes 2nd EU country to deepen ties with Taiwan -- #China Boss #News 1.24.22

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PRC’s property contagion spreads to “investment-grade” firms, Beijing directs state-owned firms to absorb struggling property developers

Bloomberg has an update on the “[f]inancial contagion" that it says "is roaring back in China’s property industry, putting renewed pressure on Xi Jinping’s government to do more to insulate the nation’s stronger developers." Analysts told the news agency they are growing increasingly concerned about the impact of Beijing's credit restrictions on stronger "investment-grade" firms and question "how long these companies can survive without policy support.”

Bloomberg:

Monday was the worst day on record for dollar bonds of Country Garden Holdings Co., China’s largest developer by sales. Some of its notes fell to as low as 62 cents, while its shares sank to an almost five-year low. The selloff also spread to stronger issuers like Longfor Group Holdings Ltd. and China Vanke Co. for the first time, as well as China’s bad-debt managers amid concern over their exposure to the property market, traders said.

….“The spread of the crisis from weaker names to investment-grade names reflects how long these companies can survive without policy support,” said Anthony Leung, head of fixed income at Metropoly Capital HK. “The best credits can last the longest, but as time goes by and the support doesn’t come, even the strongest cannot survive.”

The Chinese government is working "behind-the-scenes" to contain the situation, Bloomberg's analysts said, by "strengthening the position of larger or state-backed enterprises." Authorities are already “mak[ing] it easier for state-backed property developers to buy up distressed assets of debt-laden private firms by not counting such loans as debt under rules that cap borrowing.”

Local officials in Guangdong, for example, where failing firms China Evergrande Group and Kaisa Group are headquartered - have been holding meetings between “struggling developers and SOE’s” according to state media reports cited by Bloomberg, and Shanghai-government-controlled Shanghai Pudong Development Bank will “sell 30 billion yuan ($4.7 billion) worth of three-year bonds” through China's interbank market to finance real estate project lending.” Developer China Merchants Shekou Industrial Zone Holdings Co, a subsidiary of the state-owned China Merchants Group, ltd. which is operated by the Chinese Ministry of Transport has also been directed by Beijing “to acquire assets from cash-strapped real estate firms to ease liquidity pressure,” in a similar bond sales plan, Reuters said.

Although China Boss thinks that - given the current leadership’s priorities - authorities in China are doing what they can to ring-fence the real estate debt crisis and stave off contagion risks, theirs’ is not a fail-safe plan. Chinese banks, nearly all of which are state-owned, as well as state-owned companies, themselves, carry loads of non-performing loans and bad debts, not to mention hidden liabilities, which could hamstring plans for them to take on additional distressed assets.

Furthermore, some analysts question whether the Chinese government, itself - despite having the world’s largest foreign exchange reserves - has enough cash to absorb China’s problematic corporate debt, which also exists in a number of other industries besides the property sector, should financial contagion spread.

Nonetheless, the spread of contagion to “better-quality developers” last week is noteworthy as “a key turning point for investors,” Bloomberg analysts said. Emphasis added.

Bloomberg:

Many had assumed firms with stronger finances would have no issue accessing offshore bond markets. That assumption was challenged when Country Garden last week struggled to sell a convertible note because of weak demand, according to IFR. 

“Without doubt, this is the darkest chapter so far for China offshore dollar bonds,” said Dhiraj Bajaj, head of Asia credit at Lombard Odier. “Policy opacity has reached a tipping point for investors, and investors are looking for over-aggressive policy to be relaxed.”

For the rest of Bloomberg’s report, China’s Spreading Property Debt Crisis Pressures Xi to Ease, click here. For Reuters’ update on Pudong Development Bank and China Merchants Shekou’s plans to sell bonds, Chinese lender to issue bonds for M&A in cash-strapped property sector, click here.

Law and International Xi

France calls treatment of Uyghurs genocide

The French parliament on Thursday officially labeled China's treatment of its Uyghur Muslim minority "genocide...in a resolution that risks straining ties between Paris and Beijing two weeks before the Winter Olympics," France24 reported.