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The View | Evergrande’s woes and China’s regulatory crackdown won’t put off commercial property investors
- For cross-border investors, China’s role in the global economy, its huge consumer market and the need for exposure to the country to build scale in Asian commercial real estate outweigh the policy unpredictability
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In financial markets, sentiment has taken a knock over the past couple of months. While global stocks are still trading near record highs, investors have become much more concerned about the outlook for the global economy.
Although a number of factors are contributing to the more cautious mood, an increasingly important one is mounting anxiety over China. Over the past few months, the economic, regulatory and financial environment in the country has become much less predictable, and is now viewed as one of the main threats to markets.
A slowdown that was evident earlier this year is gathering momentum. Growth in retail sales last month fell far short of expectations, while construction investment contracted in the first eight months of this year due to more forceful measures to cool the housing market.
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Beijing’s rapidly widening regulatory crackdown has caught even the most seasoned of China-watchers off guard, fanning fears about which sector will provoke the government’s ire next following heavy-handed interventions in the technology, education and gaming industries.
Moreover, there are growing concerns about systemic risk due to the liquidity crisis gripping China Evergrande Group, the world’s most indebted real estate developer and Asia’s largest issuer of high-yield, or “junk”, bonds. The yield on a gauge of Chinese dollar-denominated junk bonds has shot up to 14 per cent, a decade high, data from Bloomberg shows.
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Angry protest at headquarters of China Evergrande as property giant faces liquidity crunch
Angry protest at headquarters of China Evergrande as property giant faces liquidity crunch
While a restructuring of Evergrande’s staggering US$300 billion debt pile remains the most likely scenario, uncertainty over how far Beijing is willing to go to reduce moral hazard, and take the heat out of the housing market, is undermining sentiment towards China.
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