China’s Property Squeeze: Developers face a liquidity crunch

CHINA ADVISORY - Report 13 Jul 2018 by Andrew Collier

Out of all the sectors in China, property developers are suffering the most due to recent liquidity tightening policies from the central government. On one hand, traditional financing channels of bank loans, sales outstanding, private placement bonds, and offshore bond issuance have been significantly restricted. On the other hand, the peak period of debt repayment by developers is nearing. As a result, developers are confronting a serious liquidity crunch. “Two years ago, we negotiated with banks and trust companies on behalf of the company regarding fund raising,” said a senior financing manager at a medium-sized property in Jiangxi. “Now, it requires both the CEO and CFO to be there.” It has become increasingly clear that the property industry in China is entering a new stage of a shortage of capital.

The property industry is a fundamental aspect of local government revenue and GDP growth. It is also one of the largest consumers of shadow and official credit. Any industry problems will have widespread impact on the overall macro economy.

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