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China’s economy could be dragged down by loss of confidence in property sector

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Analysts warn that the loss of confidence in China’s property sector could lead to an epidemic that could further drag down the country’s economy.

Comments come after annoyed developers China Evergrande Group We failed to deliver on the $300 billion restructuring plan promised over the weekend.

Evergrande said in a filing with the Hong Kong stock exchange that it instead has “preliminary principles” for restructuring offshore debt. Evergrande Group (Nanchang) ordered to pay an unnamed guarantor 7.3 billion yuan ($1.08 billion) for failing to meet its obligations.

Shuang Ding, chief economist for Greater China and North Asia at Standard Chartered, said on CNBC’s “Sign Street Asia.”

“It leads to mortgage boycotts and very low appetites of homebuyers, which runs back to developers as low sales impact liquidity.”

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“Therefore, if this issue is not handled properly, it will have a serious impact on the economy, including government balance sheets, bank balance sheets and household budgets,” Dinh said.

Ding said problems in China’s property sector threatened market confidence, a key foundation of a robust economy.

Land sales, which make up the majority of state government revenue, have fallen 30% over the past year.

Economists said the Chinese government should box up problems in the real estate sector and deal with them holistically rather than piecemeal., We aim to avoid mass bankruptcies.

Dan Wang, chief China economist at Hang Seng Bank, said the government will ensure that troubled businesses have enough money to finish housing they have just started or projects that have already been sold. You can do this by doing

China’s Politburo suggested last week that the country may miss its 5.5% GDP growth target this year, but new data shows: China factory activity unexpectedly contracted in July after recovering from Covid-19 lockdown in June.

The Chinese government is taking the real estate sector crisis seriously, but the Evergrande crisis is unlikely to be resolved anytime soon, and may not be resolved at all, said Co-Head of Asia-Pacific Research at CreditSights. Sandra Chow said.

“I think it will take a long time for investors to put their trust in China’s real estate sector as a whole, not just Evergrande,” said Zhou.

“Despite all the easing measures, China’s property market is still in a difficult situation and property values ​​are still falling, especially in low-income areas. So it will be very difficult to restore confidence.” will be.”

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