Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your experience. Save up to 40% More details

Analysis-With Evergrande debt relief deal, China signals stability trumps austerity

Stock MarketsJan 14, 2022 03:45AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
© Reuters. A partially removed company logo of China Evergrande Group is seen on the facade of its headquarters, near a traffic light in Shenzhen, Guangdong province, China January 10, 2022. REUTERS/David Kirton

By Andrew Galbraith

SHANGHAI (Reuters) - If this week's developments at China's most indebted property developer are anything to go by, 2022 might see Beijing soften its attempts to purge the sector and make more allowances for economic stability.

China Evergrande Group, whose rocky financial situation has roiled Chinese property firms and global financial markets over the past year, got a reprieve this week after investors agreed to extend a payment date on a yuan bond.

The extension proposal, which a source familiar with the situation said had been implicitly greenlighted by regulators, offered investors a glimpse of what to expect from other property firms scrambling to service their debts.

The sector has been at the fore of Beijing's attack on bloated industries, high debt levels and over-investment as it strives for common prosperity and higher-quality growth.

But no one's quite sure how far the Communist Party is prepared to go to sacrifice the heavy contribution that real estate makes to the economy, or dispel unhealthy investor expectations of state bailouts.

Analysts said regulators seem to favour market-based debt workouts while trying to shore up investor and homebuyer confidence and soften the economic impact at a time of renewed focus on stability. It is a difficult balance.

"The concern seems to be primarily focused on homebuyers, secondarily on workers and contractor counterparties," said Charles Chang, senior director and China Country Lead at S&P Global (NYSE:SPGI) Ratings. "...the government is demonstrating that it would like the market to function."

"Market discipline will continue to be a theme, but it won't just be for the real estate sector, it will be for other sectors as well. The government's view on this seems to be pretty clear."

The stakes are high in a year in which President Xi Jinping is expected to secure an unprecedented third five-year term as president at the 20th Party Congress this fall.

In a recent note, JPMorgan (NYSE:JPM) analysts flagged the property market slowdown as the biggest threat to economic stability, noting that a 5 percentage point slowdown in investment could directly and indirectly lower GDP growth by as much as 0.7 percentage points.

Analysts surveyed by Reuters this week expect China's economic growth to slow to 5.2% this year.


The deal between Evergrande's Hengda Real Estate Group and holders of its 4.5 billion yuan ($707.60 million) bonds allowed the firm to avoid a technical default that could have complicated its restructuring.

The company has been struggling to repay more than $300 billion in liabilities, including nearly $20 billion of offshore bonds deemed in cross-default by ratings agencies last month after it missed payments.

It is not alone, with Chinese developers facing $116 billion in maturing debt this year, according to Refinitiv.

Graphic: Evergrande contagion, Growing stress in the property sector has prompted Beijing to soften its clampdown at the margins, relaxing debt ratio rules dubbed the "three red lines" to ease acquisitions by state-owned developers.

"For developments to continue and to limit contagion risks, it is important to avoid a large number of distressed firms. This is why policy support should arrive, be it through increased lending by state banks or through facilitating asset acquisitions by state-owned developers," said Wei-Liang Chang, an FX and credit strategist at DBS Bank in Singapore.

At the same time, forcing some leveraged developers into debt restructurings could reinforce the message of credit discipline for developers and investors, he said.

Michael Pettis, a non-resident senior fellow at the Carnegie–Tsinghua Center for Global Policy, expressed scepticism that Beijing would make significant progress in addressing property sector debt risks this year, noting that moves such as relaxing the three red lines have simply allowed the shifting of debt burdens to state-owned firms from the more constrained private sector.

"China hasn't really resolved the fundamental issue ... You can't have less debt and the same amount of growth. There's just no way. And because this is a politically important year, my guess is growth is going to win over yet again."

($1 = 6.3595 Chinese yuan)

Analysis-With Evergrande debt relief deal, China signals stability trumps austerity

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email