(Finance) – In a week of mid-August poor in significant news in Italy and Europe, China has taken care of providing ideas to investors from all over the world. Indeed, in the past few days, the turbulence in the Chinese real estate sector has worsened, fears have emerged for the stability of the country’s extremely important shadow banking system, rumors have increased regarding direct interventions by the authorities in the financial markets, and reform plans have emerged from part of some imported regulatory authorities.
On the real estate front, on Monday – after the suspension of trading of some of its bonds – the shares of Country garden, a property development company, plummeted to an all-time low. The company is on the verge of default and must make some interest payments on the dollar bonds within the classic 30 days, on which defaulter since last August 6th.
Friday Evergrandethe world’s most leveraged real estate giant, invoked the Chapter 15 of the Bankruptcy Code in the United States to protect against creditors. The move, not unusual in the case of international restructuring deals, protects the group from creditors in the United States as it works on a global deal.
These two are only the most conspicuous among the troubled real estate companies in the country: according to Bloomberg calculations, 18 of the 38 building companies listed on Chinese exchanges reported losses in the first six months of the yeara number up from 2022.
As a further sign of the real estate sector’s debt problems, several publicly traded companies reported the failure to receive some payments owed by companies associated with the Group Zhongzhi Enterprise. The liquidity crisis could risk generating negative repercussions on the banking system, given the large size of the country’s shadow banking system.
On the currency front, Friday morning the People’s Bank of China – or the central bank of the country – has established a fixing on the USD/CNY exchange rate at 7.2006, which compared to the consensus of 7.3065 was the largest differential in favor of the national currency since the survey began in 2018.
“The PBoC’s move follows rumors that Chinese authorities have asked state banks to step up interventions on the yuan to reduce foreign exchange volatility – ING analysts pointed out – We could also see a cut in foreign exchange reserve requirements, often considered a tool to avoid a sharp depreciation of the CNY”.
On the previous day, the PBoC itself had declared that it intends to “adapt to the new situation of major changes in the relationship between supply and demand in the real estate market, adjust and promptly optimize real estate policies and promote the stable and healthy development of the real estate market”. The central bank will step up its support to the economy as domestic demand has weakened and businesses are struggling, reads the quarterly report on monetary policy, and therefore says it is ready to increase financial support for affordable housing for low-income residents in Chinese cities.
Finally, on Friday, the China Securities Regulatory Commission (CSRC) – or the Chinese financial market regulatory authority – presented a series of measures to revive the stock market, following requests from the Politburo last month. In addition to the need for “vigorous development” of equity funds, he signaled a willingness to reduce trading costs, support share buybacks and dividend distributions by listed companies, and introduce long-term equity instruments,
These measures will only represent a marginal improvement if China fails to appease i fears of international investors due to the fragility of the real estate system and the shadow banking sector, with some investors fearing a “Lehman moment” for the large Asian economy, or a shock that could worry the stability of the entire economy, after the recent and disappointing macroeconomic data which had already raised numerous doubts on China’s ability to achieve the growth objectives it has set itself. In all this, theopacity with which the Chinese authorities intervene on the markets – as in the case of the foreign exchange market after the collapse of the yuan – is certainly not a reassuring factor.
(Photo: Christian Lue on Unsplash)