ALBAWABA – Chinese property stocks fell on Monday as sluggish China recovery runs into new challenges with mounting debt in the property sector and declining demand both in the domestic and overseas markets.
Chinese bank loans slid to a 14-year low, consumer and producer prices both declined, and exports slid the most in July since February 2020.
China’s yuan fell to its weakest level in 2023 on Monday, with the offshore yuan falling 0.3 percent to 7.2816 per dollar, according to Bloomberg.
Overall, the currency has tumbled about 5 percent this year, making it the worst-performing currency in Asia, after the yen and South Korea’s won.
Combined, China’s stumbling economy and the lack of effective stimulus have left the yuan with little support as the US dollar rallied.
Sluggish China recovery weighed by faltering property sector
On the other hand, Chinese blue chips lost 1.1 percent, on top of a 3.4 percent decline last week, according to Reuters. Country Garden shares slid more than 16.3 percent to all-time lows after the real estate company suspended trading in 11 of its onshore bonds.
Country Garden suspended its onshore bonds trading after a report by Chinese media Yicai on Friday came out, saying that the company was heading for a debt restructuring. Apparently, it missed payments of two dollar bond coupons due on August 6, totalling $22.5 million, according to Reuters.
The fall in Country Garden stocks dragged down China’s Hang Seng Mainland Properties Index, which fell 3.9 percent, as of Monday. The stock has lost nearly 50 percent so far this month.
Likewise, Sino-Ocean said it suspended trading of 6 percent guaranteed notes due in 2024 because of non-payment of US$20.94 million in interest, according to the South China Morning Post.
Sluggish China recovery crashes into shrinking demand, debt-laden property sector
Meanwhile, core inflation actually doubled to 0.8 percent year-on-year despite the fall in consumer prices, which was largely driven by year-ago volatility in pork prices, Reuters reported.
Pork may be an important dietary fixture there, but it is hardly representative of a high-tech, advanced economy such as China’s, where core inflation is affected by more than just pork prices. Notably, China is the world’s second-largest economy and the world’s top oil importer.
China's property sector has over the past two years been thrust into a severe debt crisis, which was initially triggered by government moves to rein in ballooning debt.
Many developers defaulted on payments as they struggled to sell apartments and raise funds, especially with domestic demand falling, despite two interest rate cuts by China’s central bank since May.
Although local governments have rolled out hundreds of measures to support the sector, and the scrapping of tight COVID curbs in December has helped, the sector has yet to recuperate.
The property sector is a cornerstone of domestic demand for the world’s second-largest economy. Sluggish China recovery is still failing to stimulate consumption locally, to make up for dwindling exports.
