* China’s economic slump deepening amid prolonged property
* Exposure to real estate threatens spillover for financial
* Major trust company missed payments to investors
* New home prices fell in July, more cities report declines
* Rate cuts on Tuesday not enough to halt slump-analysts
BEIJING/HONG KONG, Aug 16 (Reuters) – Missed payments on
investment products by a leading Chinese trust firm and a fall
in home prices have added to worries that China’s deepening
property sector crisis is rapidly stifling what little momentum
the economy has left.
Zhongrong International Trust Co., which traditionally had
sizable real estate exposure, missed payments on dozens of
investment products since late last month, a senior official has
China’s $3 trillion shadow banking sector is roughly the
size of Britain’s economy, and concerns about its outsized
exposure to property and risks to the wider economy have grown
over the past year.
A string of defaults in the shadow banking sector could have
a wide ranging chilling effect as many individual investors are
exposed to the high-yielding trust products. Missed payments
could weigh on already fragile consumer confidence in the
absence of stronger support measures from Beijing.
Barclays was among a number of global banks to cut its
forecasts for China’s 2023 growth after weak data on Tuesday,
citing a faster-than-expected deterioration in the housing
market. It lowered its growth forecast to 4.5% from 4.9%.
So far, China has largely managed to avoid a spillover of a
debt squeeze in the property sector to the country’s $57
trillion financial industry despite a rising number of
developers defaulting on repayment obligations.
But news of fresh defaults has triggered contagion
Adding to the gloom, China’s new home prices fell in July
for the first time this year, the latest in a string of downbeat
data that underlines the urgency for bolder policy support.
Prices fell 0.2% month-on-month on a nationwide basis and
0.1% year-on-year, according to Reuters calculations based on
National Bureau of Statistics (NBS) data.
But the picture is far worse outside of the country’s
megacities like Shanghai and Beijing. Average new home prices in
the 35 smallest cities surveyed by NBS fell for the 17th
straight month in June on a year-on-year basis.
The worsening debt crisis at major developers including
Country Garden, the country’s largest private
developer, has scared away many home buyers, with property
investment, home sales and new construction contracting for more
than a year.
Given the property market has traditionally accounted
for about a quarter of China’s economy, some analysts say the
slump, combined with the shock from three years of strict COVID
measures, has had an unprecedented impact on activity.
Most analysts expect further falls in home prices and sales
over coming months.
MORE HELP NEEDED
Tuesday’s data added to a raft of weak economic indicators
in recent months, and has raised calls from China watchers for
authorities to roll out bolder support measures to arrest the
Gerwin Bell, PGIM fixed income’s lead economist for Asia,
said Country Garden’s trouble underscored that the fallout from
the property market crash has not been contained and is spilling
over across the wider economy.
“Arresting the adverse spillovers from property will require
significantly larger fiscal stimulus than the authorities have
so far entertained. We expect the Chinese authorities to soon
come to the same conclusion.”
China’s property sector continues to struggle despite an
extension of financial support for developers and incentives for
first-time home buyers and upgraders.
Among 70 cities, 49 saw a fall in new home prices
month-on-month in July from 38 cities the previous month.
Last month, China’s top leaders in a Politburo meeting vowed
to adjust property policies.
The housing regulator has also urged efforts to prop the
sector such as via lower home mortgage rates and down payment
ratios for first-time homebuyer and easing mortgage curbs for
people who want to upgrade their homes.
Some cities including Zhengzhou have already relaxed a
handful of property curbs in efforts to shore up sentiment.
Provincial capitals like Xian and Fuzhou are considering
reductions in downpayments ratio for residents who will buy
their second flats.
“We continue to expect more housing easing measures in
coming months, including further reduction in down-payment
ratios and more relaxation of home purchase restrictions in
large cities, among others,” economists at Goldman Sachs said in
a note to clients.
However, most economists expect the downturn in home sales
and prices to persist for a while.
“High-frequency data in early August does not suggest any
meaningful improvement in the property market,” said Wang Tao,
Head of Asia Economics and Chief China Economist at UBS
“Without additional major policy easing and/or fiscal
support, property sales and investment may weaken further or
stay at the bottom for longer than assumed in our baseline,”
(Reporting by Qiaoyi Li, Liangping Gao, Jason Xue, Ziyi Tang,
and Ryan Woo; additional reporting by Matt Tracy in Washington
and Davide Barbuscia in New York; Writing by Sumeet Chatterjee;
Editing by Sam Holmes, Shri Navaratnam and Kim Coghill)