The International Monetary Fund (IMF) has raised concerns about China's financial stability due to an escalating real estate crisis, signaling a downward revision of the country's growth forecasts. The situation has prompted a call for urgent intervention from China's authorities to manage the turbulence and restore faith in the sector. Notable figures from the IMF, including Chief Economist Pierre-Olivier Gourinchas, Tobias Adrian, and Fabio Natalucci, stressed the urgency of this matter on Tuesday.
The real estate sector in China is under significant pressure, with local governments and provincial banks heavily exposed. Major developers such as Country Garden and Evergrande exemplify these pressures. Country Garden is grappling with a $196 billion debt, while Evergrande, which defaulted in 2021, holds a staggering $300 billion debt. The ongoing crisis is further complicated by the coronavirus pandemic and a broader economic slowdown.
Gourinchas urged China's forceful intervention at a conference in Marrakech on Tuesday. He recommended supporting the restructuring of underperforming property developers and safeguarding financial stability to prevent a wider financial contagion.
According to InvestingPro data, Evergrande's market cap is at a low $2693.16M USD, with a negative P/E ratio of -0.33, indicating the company's financial struggles. Additionally, the company's 1-year price total return is at a staggering -57.63%, reflecting its poor performance in the stock market.
Country Garden, on the other hand, has a healthier market cap of $220.88M USD, and a positive P/E ratio of 9.65, according to InvestingPro data. However, its 1-year price total return is only 0.18%, indicating a stagnant performance.
Despite strategies like interest rate cuts and promoting housing sales, the economic outlook remains unfavorable. In response to these challenges, China is considering increasing its 2023 budget deficit and initiating a new round of stimulus to meet its growth objectives. These measures aim to complete existing projects and restructure weak developers in an effort to restore confidence in the sector.
InvestingPro Tips for companies like Evergrande and Country Garden highlight the importance of managing significant debt burdens and improving gross profit margins. These tips, along with hundreds more, are available through InvestingPro's premium service, which you can explore here.
This situation underscores the urgency for China to address its real estate troubles promptly and effectively, given its potential impact on global markets and financial stability. The data from InvestingPro underscores the gravity of the situation and the need for strategic intervention.
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