Barely Evergrande: Chinese economy needs more support as restrictions on property and technology take their toll

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Workers at a construction site in Shanghai, China. Photo taken on July 12, 2021. REUTERS / Aly Song / File Photo

BEIJING, Sept.22 (Reuters) – Greater political support for the Chinese economy, including increased lending power of banks, is expected to dispel the gloom caused by the housing cooling measures, a burst of regulatory force and China The woes of the Evergrande group.

“The Chinese real estate sector and the overall economy will slow significantly, credit risks will increase further and Beijing increasingly needs to step up its political support,” Nomura analysts wrote this week, fearing a default on the debt. second largest real estate developer in China. shook the world markets.

Economists downplay the idea that the scale of Evergrande’s problems (3333.HK) represents a “Lehman moment” in terms of global contagion risks, but it certainly complicated matters for policymakers in Beijing.

They tried to curb rampant borrowing and prevent an asset bubble in real estate, which makes up about a quarter of China’s economy and is a key driver of demand for materials, especially concrete and steel. .

Repeating that “housing is for living, not for speculation,” authorities have limited developers’ debt ratios and restricted access to loans and home purchases.

At the same time, regulatory squeeze in several sectors in the name of President Xi Jinping’s “common prosperity” push, including banning many private lessons and limiting online gambling for minors, has heightened uncertainty for businesses and upset the stock markets. Read more

Many analysts expect another reduction in the amount of liquidity banks must hold in reserve later this year, after a cut in July, although comments from officials earlier this month dampened expectations of an imminent easing. Read more

“With the economy slowing and concerns about the real estate sector increasing, we believe that key rate cuts by the PBOC could occur as early as next month,” Capital Economics wrote on Wednesday, referring to the Bank. people of China.

Other analysts believe a reduction is possible but unlikely before the end of the year.

China maintained its key rate for loans to businesses and households for the 17th consecutive month at its September fixing.

The Chinese economy has come back to life after a coronavirus-induced crisis in 2020, but activity has recently declined due to regulatory measures, supply bottlenecks and restrictions due to localized outbreaks of COVID-19.

Bank of America on Tuesday lowered its growth forecast for China for this year to 8.0% from 8.3%, and its 2022 forecast to 5.3% from 6.2%. Read more

HOUSE PRICES FALL, NEW CONSTRUCTIONS FALL, LOANS WEAKEN

More than 20 cities tightened the brakes on the real estate sector in August, when house prices in China posted the slowest monthly increase since December. Starts of new properties in the first eight months were down 3.2% from the previous year. Read more

“The housing down cycle could increase the pressure on growth next year, when the political focus could shift from regulation to political backing to defend the bottom line from 5% growth,” said Larry Hu from Macquarie, in a note.

Investors should look to the December meeting of China’s Politburo for signals on next year’s priorities, he added.

A wave of new regulations in technology and education has dampened business and wiped out hundreds of billions of dollars from company valuations.

The weak loan growth in August was likely due in part to regulatory crackdown, Iris Pang, chief economist for Greater China at ING, said in a note.

Some companies do not take loans when they reconsider their investments or find that banks are unwilling to take risks amid uncertainty, she said.

The crackdown on the education and tech sectors also added to the unusually poor service activity data for August, ING’s Pang said. Read more

Last month, Reuters reported that TikTok owner Bytedance told his employees that he planned to lay off staff in his education business and shut down some tutoring operations. Juren Education Group, in the extracurricular tutoring industry, announced earlier this month that it would be shutting down.

Service sector activity fell sharply in August for the first time since the depths of the pandemic in February last year, mainly due to restrictions linked to COVID-19.

Reporting by Gabriel Crossley; Editing by Simon Cameron-Moore

Our standards: Thomson Reuters Trust Principles.


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