Chinese real estate crisis pressures Xi to ease

Financial contagion is once again threatening China’s real estate industry, again putting pressure on the Xi Jinping government to do more to protect the nation’s strongest property developers.

Monday was the worst day on record for US dollar bonds. Country Garden Holdings Co., the largest developer in China in terms of sales. Some of its bonds fell to 62 cents, while its shares sank to a nearly five-year low.

The liquidation also extended to stronger issuers such as Longfor Group Holdings Ltd. Y China Vanke Co. for the first time, as well as Chinese bad debt servicers amid concerns about their exposure to the real estate market, dealers said.

While the panic appeared to subside on Tuesday as developer shares and bonds pared some of the previous day’s losses, analysts expect the situation to worsen unless Beijing takes steps to improve the real estate sector’s access to finance.

Authorities may need to ease restrictions on the use of pre-sale proceeds for financing purposes, according to Citigroup Inc. economists, announcing “sooner” a lighter version of a national property tax.

Banks are also widely expected to cut their benchmark rate for home loans on Thursday.

“The spread of the crisis from the weakest companies to those with investment grade reflects how long these companies can survive without government support“, He said Anthony Leung, director of fixed income Metropoly Capital HK. “The best credits can last longer, but with the passage of time and without support, even the strongest will not be able to survive.”

The growing risk of financial contagion highlights the challenge facing Xi in reforming the residential real estate market, especially at a time when omicron outbreaks in the country darken the outlook for the economy. Xi it seeks to reduce the threat that a real estate collapse would represent in the financial system, as well as reduce the gap between the rich and the poor in the country.

“We consider it urgent that the Government stabilize the real estate sector”, they wrote Xiangrong Yu Y Xiaowen Jin, analysts of Citigroup Inc., in a note on Monday. “In particular, it may need to tighten credit and loosen regulations for pre-sale funds from private developers.”