China’s property sector: a step in the right direction

Executive summary

The Asian credit markets have had a rocky start to 2022. The year began with a series of idiosyncratic credit events dominating headline news. Delays on asset sales, announcements on bond extensions and debt exchange, hidden onshore debt surfacing, and yet more cases of rating downgrades further dampened confidence towards the sector.

  • We observed a distinct shift in policy tone, which suggests more policy easing could be on the cards, such as a mix of increased lending facilities, window guidance to banks, interest rate reductions, and/or RRR cuts.
  • The recent policy developments are a step in the right direction for the property sector. They send a clear signal that the Chinese authorities recognise the stress in the embattled industry.
  • Our focus is on managing idiosyncratic credit risks. The latest policy actions should limit contagion in the sector but may not be in time for some developers with immediate funding needs.
  • Further progress on M&A activities, increase in bank lending and stabilisation in the physical property sales will be critical in sustaining the momentum.