Equity Research in HK and Mainland China

Li Tang

Thematic (Sector/Industry)

Some developers have reportedly proposed to extend their offshore bond maturities or conduct debt restructuring at the NDRC and SAFE meeting earlier this week.Eight developers were summoned to the meeting, according to local media reports. The attendees include a mixture of overlevered and stable developers in terms of offshore debt risks, such as <a href="https://www.smartkarma.com/entities/china-vanke-co-ltd" target="_blank" data-smartkarma-citation="entities:26076:1" rel="noopener">China Vanke (000002 CH)</a> , <a href="https://www.smartkarma.com/entities/shimao-property-holdings-limited" target="_blank" data-smartkarma-citation="entities:8375:1" rel="noopener">Shimao Property Holdings (813 HK)</a> , <a href="https://www.smartkarma.com/entities/sino-ocean-land-holdings" target="_blank" data-smartkarma-citation="entities:8898:1" rel="noopener">Sino Ocean Land (3377 HK)</a> , <a href="https://www.smartkarma.com/entities/kaisa-group-holdings-ltd" target="_blank" data-smartkarma-citation="entities:169:1" rel="noopener">Kaisa Group Holdings (1638 HK)</a> ,  <a href="https://www.smartkarma.com/entities/central-china-real-estate-ltd" target="_blank" data-smartkarma-citation="entities:513:1" rel="noopener">Central China Real Estate (832 HK)</a> , and <a href="https://www.smartkarma.com/entities/oceanwide-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:14048:1" rel="noopener">Oceanwide Holdings (000046 CH)</a>
We have seen a shift in the property policy stance from comprehensive tightening to finetuning policy.

Some developers have reportedly proposed to extend their offshore bond maturities or conduct debt restructuring at the NDRC and SAFE meeting earlier this week.Eight developers were summoned to the meeting, according to local media reports. The attendees include a mixture of overlevered and stable developers in terms of offshore debt risks, such as China Vanke (000002 CH) , Shimao Property Holdings (813 HK) , Sino Ocean Land (3377 HK) , Kaisa Group Holdings (1638 HK) ,  Central China Real Estate (832 HK) , and Oceanwide Holdings (000046 CH)
We have seen a shift in the property policy stance from comprehensive tightening to finetuning policy.

Developers Said to Propose Offshore Bond Extension to Regulators

The NPCSC pushed forward with the property tax by granting the State Council authority to pilot it in certain regions for five years with the purpose to guide reasonable property consumption.
China has discussed the property tax plan and even launched pilot programs in Shanghai and Southwest China's Chongqing as early as 2011. The widening of the property pilot progamme would shake the real estates market,property-related industries, such as the steel and cement sectors. However,the tax may be neutral over the long-term for developers due to the expectation that the existing administrative controlling measures would be gradually removed after the implementation of the tax. Moreover, tax burdens would be moved from the construction stage to home transaction and holding phases, i.e. from developers to homeowners/ speculators.

The NPCSC pushed forward with the property tax by granting the State Council authority to pilot it in certain regions for five years with the purpose to guide reasonable property consumption.
China has discussed the property tax plan and even launched pilot programs in Shanghai and Southwest China's Chongqing as early as 2011. The widening of the property pilot progamme would shake the real estates market,property-related industries, such as the steel and cement sectors. However,the tax may be neutral over the long-term for developers due to the expectation that the existing administrative controlling measures would be gradually removed after the implementation of the tax. Moreover, tax burdens would be moved from the construction stage to home transaction and holding phases, i.e. from developers to homeowners/ speculators.

State Council to Pilot Property Tax in Certain Regions for Five Years

We have seen a shift in the property policy stance from comprehensive tightening to finetuning policy, which includes some significant local easing such as the raft of measures announced in Harbin as well restarted RMBS issuance that is expected to top up mortgage quotas.
Two recent PBOC meetings affirmed the importance of “healthy property market development” and protecting homebuyers’ rights. This means that policymakers want the property market to be not too hot (as it was late last year) and not too cold.
The backdrop is the Evergrande crisis, based on high liabilities and triggered by plummeting home sales, but also expected growth pressures as the pandemic continues and with power shortages.

We have seen a shift in the property policy stance from comprehensive tightening to finetuning policy, which includes some significant local easing such as the raft of measures announced in Harbin as well restarted RMBS issuance that is expected to top up mortgage quotas.
Two recent PBOC meetings affirmed the importance of “healthy property market development” and protecting homebuyers’ rights. This means that policymakers want the property market to be not too hot (as it was late last year) and not too cold.
The backdrop is the Evergrande crisis, based on high liabilities and triggered by plummeting home sales, but also expected growth pressures as the pandemic continues and with power shortages.

Chief Economist & Political Strategist, CrossASEAN Research

Prasenjit K. Basu

Chief Economist & Political Strategist

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Cross Asset Strategy

13 months after its introduction, China's "Three Red Lines" (TRL) policy initiative (to reduce leverage, improve debt coverage and increase liquidity) for property companies is beginning to have a serious impact. A key contributory factor is that TSF (total social financing) has increased by a more moderate RMB21.68 trillion in Jan-Aug 2021 than last year (RMB25.97 trillion in Jan-Aug 2020), which still implies 10.3% YoY growth in the stock of TSF (to RMB306.83 trillion, or US$47.5 trillion), which is near the slowest-ever pace since TSF began to be published. The stock of M2, bank credit and TSF in China are at historic highs never reached by any other country, and the growth of all these aggregates continues, albeit at a marginally slower pace.Despite the abundance of liquidity (and the cut in RRR in mid-July), real GDP is growing barely over 5% YoY in 3Q 2021, with retail sales decelerating to 2.5% YoY growth and industrial production to 5.3% YoY growth in August 2021. The latter was largely export-driven (helped by a surge in global trade), as FAI (fixed asset investment) declined 2.1% YoY in May-August 2021. Such an economic deceleration in the year before an important leadership transition (i.e., rubber-stamping of continuity for Xi, change for others around him) will be met by further monetary easing in October 2021. That half of the 10 largest residential-property developers are Guangdong-based (a province traditionally known for both entrepreneurship and rebellion) makes them particularly vulnerable to the political crackdown on capitalists. The focus increasingly will be on cutting the costs of property, healthcare and education, not just tech titans.  However, moral hazard will be tightly managed. Onshore (local currency) bond holders will bear relatively few losses on high-profile names like Evergrande (although there will be credit events for bank loans), while offshore foreign-currency bond holders are likely to feel considerable pain (i.e., the partial end of the "moral hazard play"). The political crackdown on sundry capitalists -- tech titans, others seeking overseas listings, property developers, gaming companies -- will persist, adding more to the China Premium. We would recommend staying Underweight China equities amid the uncertainty generated by this political instability, which will result in a new equilibrium discount on Chinese valuations emerging by early 2022.

13 months after its introduction, China's "Three Red Lines" (TRL) policy initiative (to reduce leverage, improve debt coverage and increase liquidity) for property companies is beginning to have a serious impact. A key contributory factor is that TSF (total social financing) has increased by a more moderate RMB21.68 trillion in Jan-Aug 2021 than last year (RMB25.97 trillion in Jan-Aug 2020), which still implies 10.3% YoY growth in the stock of TSF (to RMB306.83 trillion, or US$47.5 trillion), which is near the slowest-ever pace since TSF began to be published. The stock of M2, bank credit and TSF in China are at historic highs never reached by any other country, and the growth of all these aggregates continues, albeit at a marginally slower pace.Despite the abundance of liquidity (and the cut in RRR in mid-July), real GDP is growing barely over 5% YoY in 3Q 2021, with retail sales decelerating to 2.5% YoY growth and industrial production to 5.3% YoY growth in August 2021. The latter was largely export-driven (helped by a surge in global trade), as FAI (fixed asset investment) declined 2.1% YoY in May-August 2021. Such an economic deceleration in the year before an important leadership transition (i.e., rubber-stamping of continuity for Xi, change for others around him) will be met by further monetary easing in October 2021. That half of the 10 largest residential-property developers are Guangdong-based (a province traditionally known for both entrepreneurship and rebellion) makes them particularly vulnerable to the political crackdown on capitalists. The focus increasingly will be on cutting the costs of property, healthcare and education, not just tech titans.  However, moral hazard will be tightly managed. Onshore (local currency) bond holders will bear relatively few losses on high-profile names like Evergrande (although there will be credit events for bank loans), while offshore foreign-currency bond holders are likely to feel considerable pain (i.e., the partial end of the "moral hazard play"). The political crackdown on sundry capitalists -- tech titans, others seeking overseas listings, property developers, gaming companies -- will persist, adding more to the China Premium. We would recommend staying Underweight China equities amid the uncertainty generated by this political instability, which will result in a new equilibrium discount on Chinese valuations emerging by early 2022.  

We are still reasonably positive on the outlook for underlying demand for housing amid an uneven economic recovery in which consumer confidence over employment and income prospects is building.Mortgage availability remains good. We believe monetary policy will continue to normalise as the economic recovery continues, even as PBOC ensures sufficient short-term liquidity to manage financial risks.
<ul class="" type="disc">
<li>China New Home prices grew at slowest monthly pace since March of this year</li>
<li>The real estate investment and property sales remained robust In Nov</li>
<li>Developer financing growth accelerated in Nov</li>
<li>30 large cities property sales still relatively strong in Dec, but with regional divergence</li>
<li>Xi'an and Hangzhou city tighten  property control policy by raising  down payment ratio for the second home buyer.</li>
</ul>
Top picks: <a href="https://www.smartkarma.com/entities/china-vanke-co-ltd" target="_blank" data-smartkarma-citation="entities:26076:1" rel="noopener">China Vanke (000002 CH)</a> <a href="https://www.smartkarma.com/entities/yango-group-co-ltd" target="_blank" rel="noopener">Yango Group (000671 CH)</a> ,<a href="https://www.smartkarma.com/entities/china-resources-land-ltd" target="_blank" rel="noopener">China Resources Land (1109 HK)</a>, <a href="https://www.smartkarma.com/entities/poly-real-estate-group-co-ltd" target="_blank" rel="noopener">Poly Real Estate Group Co., (600048 CH), </a><a href="https://www.smartkarma.com/entities/shanghai-shimao-co-ltd-a" target="_blank" rel="noopener">Shanghai Shimao Co Ltd A (600823 CH)</a>

We are still reasonably positive on the outlook for underlying demand for housing amid an uneven economic recovery in which consumer confidence over employment and income prospects is building.Mortgage availability remains good. We believe monetary policy will continue to normalise as the economic recovery continues, even as PBOC ensures sufficient short-term liquidity to manage financial risks.

China New Home prices grew at slowest monthly pace since March of this year
The real estate investment and property sales remained robust In Nov
Developer financing growth accelerated in Nov
30 large cities property sales still relatively strong in Dec, but with regional divergence
Xi'an and Hangzhou city tighten  property control policy by raising  down payment ratio for the second home buyer.

Top picks: China Vanke (000002 CH) Yango Group (000671 CH) ,China Resources Land (1109 HK), Poly Real Estate Group Co., (600048 CH), Shanghai Shimao Co Ltd A (600823 CH) 

China Real Estate: Property Sales Growth Turns Positive but Investment Slowed,new Home Prices Cool

China

China Vanke Co., Ltd. operates real estate development businesses.  The Company provides housing renovation, housing loans, real estate brokerage, and other businesses. China Vanke also operates logistics, material supply, and other businesses.

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China Vanke (000002 CH)

Developers Said to Propose Offshore Bond Extension to Regulators

Some developers have reportedly proposed to extend their offshore bond maturities or conduct debt restructuring at the NDRC and SAFE meeting...

Li Tang

State Council to Pilot Property Tax in Certain Regions for Five Years

The widen of property tax pilot progamme would shake the real estates market,property-related industries, such as the steel and cement sectors.

Li Tang

China Real Estate:Easing Builds Momentum

We have seen a shift in the property policy stance from comprehensive tightening to finetuning policy, which includes some significant local easing...

Li Tang

China: The End of the Moral Hazard Play?

Moral hazard will be managed, not ended. Offshore bonds, local loans will bear pain. Property, health, education costs must fall. We recommend...

Prasenjit K. Basu

China Real Estate: Property Sales Growth Turns Positive but Investment Slowed,new Home Prices Cool

We are still positive on the outlook for underlying demand for housing amid an uneven economic recovery in which consumer confidence over...

Li Tang

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