Speaker 1: You're listening to Asia Centric from Bloomberg Intelligence, the podcast
Speaker 1: that pulls back the curtain non global business so you
Speaker 1: can invest better across the Pacific realm. I'm Tom Corbett
Speaker 1: in Hong Kong.
Speaker 2: And I'm John Lee. Another domino is falling in China's
Speaker 2: troubled housing market. Country Garden, once considered a gem among
Speaker 2: Chinese property builders, is on the knife's edge of default
Speaker 2: after missing a critical debt payment, stirring a new crisis
Speaker 2: of confidence in the country's housing market and raising broader
Speaker 2: questions about its economy.
Speaker 1: Country Gardens tumble into distress closely resembles earlier Carnage, a rival,
Speaker 1: ever Grand, which defaulted on its own debt in twenty
Speaker 1: twenty one, leaving some asking if other developers are far behind.
Speaker 2: What does this latest fiasco say about China's housing market?
Speaker 2: Why is it happening, what's at stake, who's getting hurt?
Speaker 2: And how is it going to end.
Speaker 1: Let's bring in Christy Hangs, senior equity analyst with Bloomberg Intelligence.
Speaker 3: I think Country Gardens event tells us that most of
Speaker 3: China's private developers could be wiped out.
Speaker 2: From the market, and Daniel Fann, senior credit analyst.
Speaker 4: If Country Garden defaults, it will be probably marked kind
Speaker 4: of the end of China property era since two thousand
Speaker 4: and eight.
Speaker 1: Both joining us here in Hong Kong, Christy Dan, welcome.
Speaker 3: Thanks for having us going to be here.
Speaker 2: Christy. We've had a number of Chinese developers, including Evergrand,
Speaker 2: collapse over the last two years. But why is the
Speaker 2: potential default of Country Garden different?
Speaker 3: So, first of all, Country Garden has over three thousand projects,
Speaker 3: you know, and that's already four times Every Grand's number
Speaker 3: of projects. So if there are issues with unfinished homes,
Speaker 3: it's just a bigger headache for local governments to deal
Speaker 3: with because there are just many more projects. And secondly,
Speaker 3: I think the nature of the two events are very different.
Speaker 3: When Evergrand went, but the Central Bank can still call
Speaker 3: it an isolated event is because of its own poor
Speaker 3: management and ratless expand. But for Country Garden, it's designated
Speaker 3: as a high quality developer still by the government in
Speaker 3: the late twenty twenty two, and you know, it's granted
Speaker 3: as us to onshore born sales and bank credit lines,
Speaker 3: yet nine months later is failing to repay a coupont
Speaker 3: payment and for that to happen to a Country Garden
Speaker 3: is more detrimental to sentiment, I would say, because it
Speaker 3: tells you that something's fundamentally wrong in China's housing market,
Speaker 3: and that's pushing even formally healthy developers to the brank
Speaker 3: of default.
Speaker 4: From a fixing come perspective, I think Country Garden is
Speaker 4: important in the sense that it used to be a
Speaker 4: core holding for many many fund managers. I think that
Speaker 4: a pornly was rated investment grade as well. I think
Speaker 4: it may last year, So that makes it very detrimental
Speaker 4: if Country Garden goes wrong. That's more from a trading
Speaker 4: or positioning perspective.
Speaker 2: So this used to be rated investment grade. You're saying
Speaker 2: yes and low investment grad I hate to be one
Speaker 2: of those analyst right now.
Speaker 1: But when you consider how quickly Country Garden went into
Speaker 1: distress Christy Dan, what does that tell you about the
Speaker 1: nature of their financial situation and China's broader housing market.
Speaker 3: The Country guardency event postes questions about the fundamental health
Speaker 3: of China's housing market. And we have always acknowledged that
Speaker 3: housing market in China are property developers, they are over leverage,
Speaker 3: and there's an oversupply in the housing market in China,
Speaker 3: and there's a lot of access in the system, but
Speaker 3: that has gone unnoticed when there are a lot of
Speaker 3: investment demand scooping or absorbing those oversupply of properties. But
Speaker 3: when the parties stopped in twenty twenty one and the
Speaker 3: pricing come down, and when people stop investing, we realize
Speaker 3: that there is a big problem there. And it is
Speaker 3: not a cyclical problem that you can wait out for
Speaker 3: a few years for things to get better. But we
Speaker 3: realize that China is facing our structural problems and housing
Speaker 3: market is going to change in the way that it
Speaker 3: operates for many years to come, and it's going to
Speaker 3: be a painful process of adjustments.
Speaker 1: Then you'll fan, did it surprise you how quickly Country
Speaker 1: Garden fell into distrust? Is that something you could have
Speaker 1: seen coming?
Speaker 4: I think yes and no. Yes in the sense that
Speaker 4: once they are not able to do the sare placement
Speaker 4: at the end of July, which was a very strong
Speaker 4: signal about their ability to get refinancing or willingness.
Speaker 1: That was the early signal that maybe something wasn't quite right.
Speaker 4: That was a confirment signal kind of. I think Christie
Speaker 4: has made some earlier call about the negativity on the setter.
Speaker 4: So for Country Garden, because they did a roll over
Speaker 4: on their syndicated long in July. So given hope that
Speaker 4: they're able to roll over and then hopefully followed by
Speaker 4: a Sair placement, then I think they're able to kind
Speaker 4: of like muddle through for a couple of a few
Speaker 4: more months before they made the call to delay their
Speaker 4: cup point payment.
Speaker 3: Yeah, and for our side, I think that canary in
Speaker 3: the coal mine is in early July when we know
Speaker 3: that contractor sales for Country out And was down fifty
Speaker 3: four percent year over year in June. And I think
Speaker 3: some of the media has liken China developers to that
Speaker 3: business model to a Ponzi scheme, which is, you know,
Speaker 3: because often developers need to bring in fresh new cells
Speaker 3: to generate cash in order to surface the construction cost
Speaker 3: of projects that were sold one to two years ago.
Speaker 3: And Country Oda had said before in need twenty eight
Speaker 3: to thirty billion yar a month to ensure it has
Speaker 3: enough cash to complete presole properties. Yet we keep on
Speaker 3: seeing cells falling, you know, sixteen billion, twelve billion, and
Speaker 3: that's when we started making calls on you know, we
Speaker 3: need to worry about its liquidity. But I think everything
Speaker 3: is unfolding so quickly and suddenly. Timing wise, our best
Speaker 3: guests was something that might happen late this year or
Speaker 3: early next year when it's convertible born or dollar born
Speaker 3: come due.
Speaker 2: So Christy, you med an interesting observation. Are you suggesting
Speaker 2: that they need new sales to fund existing projects?
Speaker 3: Yeah, because I think it's the business model of Chinese developers.
Speaker 3: You know, they are looking at high turnover of their assets,
Speaker 3: so they will try to make money from contract to sales,
Speaker 3: and with that money they would invest in new land
Speaker 3: puzzles to just keep on boosting their land bank and
Speaker 3: their top line growth. But suddenly, when sell slum, which
Speaker 3: is the case when everywhere went bus and the whole
Speaker 3: industry we had saw thirty percent slum in sALS in
Speaker 3: twenty twenty two, the problem starts unfolding and we can
Speaker 3: see that, you know, they're running out of liquidity. A
Speaker 3: lot of their money is locked on a project level.
Speaker 3: And then we see, you know, developers failing to repay debt,
Speaker 3: and it's just keep on spreading to more and more developers.
Speaker 1: And that wasn't just for Country Garden, was it. Christie
Speaker 1: Hung that's true for most China property developers. This idea
Speaker 1: that as long as they have access to financing, whether
Speaker 1: it's debt or equity or for sales, they can keep
Speaker 1: kicking the ball down. They can keep perpetuating their business
Speaker 1: model once something goes wrong.
Speaker 3: Yes, that's very true. And I think, just to be clear,
Speaker 3: you know, since Everygrand's debacle, there are over sixty other
Speaker 3: developers that have extended or defaulted on their debts. So
Speaker 3: there are many privately owned developers that is still soften,
Speaker 3: and Country Garden is one of the biggest survivor until
Speaker 3: it's failing to repay is coupon payments.
Speaker 2: So back during the global financial crisis, the US and
Speaker 2: European government saved a lot of banks and companies dean
Speaker 2: too big to fail? Do you think Country Garden is
Speaker 2: too big to fail? And will the Chinese authorities come
Speaker 2: to the rescue with a bailout plan?
Speaker 3: So to me, it's too big to fail, and because
Speaker 3: I've talked about how it's the largest developer by itself
Speaker 3: in the past six years and a dead crisis is
Speaker 3: going to put completions of its three thousand projects at risk.
Speaker 3: But that being said, we don't think Country Garden can
Speaker 3: count on about by the government because since mid twenty
Speaker 3: twenty one, since Everygrand's debarcle, the government has stopped sort
Speaker 3: of rescuing the liquidity of individual developers, and Country Garden
Speaker 3: could be no exception. You know, the government's priority is
Speaker 3: to complete the priestole homes to ensure the livelihood of people,
Speaker 3: but not to prevent corporate effaults.
Speaker 2: And is there an underlying raison for that. Is the
Speaker 2: government just running out of finances or is it more
Speaker 2: that the worried about moral hazard risk.
Speaker 3: I think both of your reasoning makes sense, and at
Speaker 3: the end, I think it does make sense if the
Speaker 3: government doesn't offer a bet or because if you look
Speaker 3: at the land bank of Country Garden, eighty percent of
Speaker 3: it is focused on China smaller low tier cities where
Speaker 3: you know, housing is now very hard to sell and
Speaker 3: that's very weak demand in those markets. So even if
Speaker 3: there is hand out from the government, it is going
Speaker 3: to only offer temporary liquidity reprieve, but it's not going
Speaker 3: to change the longer term fate that you know, Country
Speaker 3: Garden's business model isn't working, and it's due to aufflaor
Speaker 3: strategic focus on log cities, and I think to the
Speaker 3: government's point, it might not make sense to throw good
Speaker 3: money off to pat.
Speaker 1: You're listening to Asia Centric from Bloomberg Intelligence. By the way,
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Speaker 1: from our listeners. You know, a lot of the damage
Speaker 1: may not come from the crisis itself at Country Garden,
Speaker 1: but in Chinese consumer's reaction to it, because it may
Speaker 1: fan the flames of doubt among home buyers. Many you're
Speaker 1: going to be reluctant to purchase because they lack confidence
Speaker 1: that Country Garden can deliver. Are we at risk of
Speaker 1: a feedback loop here? Now that this has happened to
Speaker 1: a second major developer, Daniel Fan any take on that?
Speaker 4: Yeah, I think it's just Tom Westpinal just add to
Speaker 4: what Christy mentioned. I think we financing is one thing
Speaker 4: causing the trouble. It's a double mmy weaker sales plus
Speaker 4: a let lot with financing market. If you're homeowner, first
Speaker 4: of all, you worry about delivery, and then second of all,
Speaker 4: you worry about mortgage, so definitely it will burn into consumption.
Speaker 4: I think an other impact would be like engineering companies.
Speaker 4: Construction companies that deal directly with developers may also take.
Speaker 3: The heat, right and I think that's you know, with
Speaker 3: the stumming home selves. Adding to what Dan just mentioned,
Speaker 3: there's also downstream industries that is going to be impacted.
Speaker 3: You know, look at renovation companies, white goods, furniture, and
Speaker 3: if there's falling home prices, you can expect there would
Speaker 3: be wealth effect on consumption. Consumers are now feeling poorer
Speaker 3: because home prices are declining and they are less likely
Speaker 3: to spend, especially on say discretionary items, and that in
Speaker 3: turns squeeze retail sales, herd corporate earnings, and corporates might consider,
Speaker 3: you know, it has to cut headcounts, and then that's
Speaker 3: built over into you know, there's a weaker and player,
Speaker 3: I'm an outlook in the market, and people are not
Speaker 3: feeling safe about the income and about their job, so
Speaker 3: then they might not be able to commit to buying
Speaker 3: a property right now. So it's a negative loop, as Tom.
Speaker 1: You mentioned, and Chinese consumers are already feeling strapped, and
Speaker 1: this is coming against a backdrop of almost a cascade
Speaker 1: of problems. You've got inflation, you've got youth unemployment. So
Speaker 1: talk a little bit about how the impact and the
Speaker 1: housing market is dovetailing into all those other factors.
Speaker 3: China property is say twenty twenty five percent of China's GDP.
Speaker 1: That's a lot.
Speaker 3: It's a pillar industry. So if it has a big
Speaker 3: problem like country guidence event that we're looking at right now,
Speaker 3: it's going to weigh on sentiment on the Ovoy economy.
Speaker 2: So what can the authorities do? The Chinese government has
Speaker 2: always been able to pull some leavers to restart the economy,
Speaker 2: to fan the animal spirits. What can they do to
Speaker 2: save the housing industry?
Speaker 3: I think for now we are seeing the government is
Speaker 3: focused on demand syde policies like easing home purchase restrictions
Speaker 3: in larger cities, lowering down payment ratios, and cutting mortgage rays.
Speaker 3: But I think the reality is, you know, people are
Speaker 3: not buying property because mortgage rate is cheap. They were
Speaker 3: buying property because they expect home price to appreciate. That's
Speaker 3: until the party is over in twenty twenty one. You know,
Speaker 3: the household mindset about investing in property has changed already,
Speaker 3: and the government's mentor of housing is for living in,
Speaker 3: not for expectation, is becoming more and more ingrained in
Speaker 3: people's mindset, and I think what policy didn't do this
Speaker 3: round is to address the liquidity problem of any developer.
Speaker 3: So when buyers continue to see more developers are defaulting,
Speaker 3: that's a big damage to confidence. I think it's just
Speaker 3: very hard to just go with demand side policies to
Speaker 3: just revive demand and not fix the corporate debt problems
Speaker 3: that's facing Chinese developers, because the two go hand in
Speaker 3: hand together to bring up the health of the China's
Speaker 3: housing mine.
Speaker 2: Trying to just lower it's interest rate by fifteen basis
Speaker 2: points to two point five percent. Look, I think this
Speaker 2: was the steepest cutting three years. Do you think this
Speaker 2: is going to have any impact at all?
Speaker 3: I think, as I said, I don't think it's going
Speaker 3: to move the needle in terms of housing market sentiment
Speaker 3: because people are not buying because mortgage rate is cheap.
Speaker 3: They are buying property because they expected home price to appreciate,
Speaker 3: and that was the case in twenty sixteen to twenty twenty,
Speaker 3: when prices were up for to eleven percent per year,
Speaker 3: and you know, home price appreciation is just almost like
Speaker 3: a certainty to people. That's why there's so much investment
Speaker 3: going into property. And there's obviously overbuilding of housing in China,
Speaker 3: and when we see that they're downside to home prices
Speaker 3: since twenty twenty one, people stop investing those overbuilding of
Speaker 3: you know, infantry. There's no its demand coming in to
Speaker 3: absorb them, and that becomes a big problem.
Speaker 1: Christy Hang, Daniel Fan. We've seen Chinese regulators step in.
Speaker 1: There was somewhat of a rescue package in November, and
Speaker 1: yet still you have a second major developer that's fallen
Speaker 1: into the stress. How did we get here?
Speaker 4: I think on the financing side, the government tried to help,
Speaker 4: but the structure itself has some issue. I think they
Speaker 4: did some like three arrows program. The second one is
Speaker 4: to guarantee onso borns issue by developers. But the problem
Speaker 4: is developers need to pull up collaterals. As you know,
Speaker 4: a lot of these developers they are over leveraged already.
Speaker 4: They don't have a lot of unpledged asset to post
Speaker 4: a collateral purpose. So that's the reason why the supportive
Speaker 4: program did not work out that well.
Speaker 3: Yeah, to back up dance point, say, for example, a
Speaker 3: Country Garden, it was able to issue state guarantee bond
Speaker 3: for about three point five billion in twenty twenty two,
Speaker 3: and that compared to itself, Slum is down two hundred
Speaker 3: billion on. So you see the extreme comparison of how
Speaker 3: littwo bond is able to raise and how sales has
Speaker 3: been in a steep decline. That just shows you even
Speaker 3: though the government filed to support high quality developers like
Speaker 3: Country Garden back in November during the Rescue Plan, policy
Speaker 3: support up to this point seems still far from sufficient.
Speaker 4: Daniel.
Speaker 2: If we can take a step back, country Gardens is
Speaker 2: still not in technical default. What are the next steps?
Speaker 2: Can they pull a rabbit out of the hat?
Speaker 4: I think yeah, they still have like thirty day great spirit.
Speaker 4: They're supposed to pay the cubebone on August six, so
Speaker 4: meaning that like around September six, if they are able
Speaker 4: to come up with their money, then they are able
Speaker 4: to resolve this technical default. I'm still a little bit
Speaker 4: hopeful that they are able to come up with money,
Speaker 4: or at least come up with some swittener like to
Speaker 4: ask one extension of the cube on payment, So I
Speaker 4: think that we will buy them some time to deal
Speaker 4: with a bigger problem. And Country gardens demise has had
Speaker 4: a big impact on equity markets, but arguably it's had
Speaker 4: an even bigger impact on credit markets. How important is
Speaker 4: Country Garden to China's credit markets and what's the lasting
Speaker 4: impact if it were to devote? I think the impact
Speaker 4: is in that addition to the fact that it's a
Speaker 4: core holding for many fire managers. Is market share in
Speaker 4: the ind that is still not small if I remember correctly.
Speaker 4: It had a point eight billion of US dollars bond
Speaker 4: in the China Real Estate Index, which is around like
Speaker 4: thirty something billion if I remember correctly, So the proportion
Speaker 4: is not small. And I think more importantly is we
Speaker 4: don't have other big developers left after Country Garden. We
Speaker 4: have a bunch of like niche developers, and then we
Speaker 4: have some soees and a couple of investment grade developers.
Speaker 4: So if Country Garden defaults, it will be probably marked
Speaker 4: kind of the end of China property era since like
Speaker 4: two thousand and eight something like that.
Speaker 1: Well, that's a pretty stark or rather bold take, I
Speaker 1: would say.
Speaker 4: Yeah, So if you imagine, like if Country Garden defaults,
Speaker 4: we are going back to pre Country Garden era. Country
Speaker 4: Garden was listed in two thousand and seven, so then
Speaker 4: if they default, basically we are back to two thousand
Speaker 4: and six. At that time there were like a handful
Speaker 4: of developers in the board market.
Speaker 3: I think maybe I would like to ask then a
Speaker 3: question about the slow process of restructuring of bonds for
Speaker 3: the developers. I say, Everygren's debacle started in mid twenty
Speaker 3: twenty one, but now were still nowhere in the process
Speaker 3: of concluding our restructuring, and what is your take on that.
Speaker 4: I think there are a few reasons for that. One
Speaker 4: is to crystallize the total death. I think, for example,
Speaker 4: Evergrand they announced their twenty twenty two results not that
Speaker 4: long ago, so you need to have some kind of
Speaker 4: numbers to form at least the framework of the that
Speaker 4: restruction plan. I mean, ideally you're able to do some
Speaker 4: kind of careful projection to see how much sales you're
Speaker 4: able to generate, although that's a big academic If you
Speaker 4: talk about Evergrant's extension plan, the longest one is twelve years,
Speaker 4: So you're going to do a projection for twelve years,
Speaker 4: and I don't think it's practical at the current environment.
Speaker 4: And the other thing is, given what you have mentioned
Speaker 4: the outlook of the SETA and we are in a
Speaker 4: down cycle, some developer may just take the advantage of
Speaker 4: observing what's happening what others are going to do. At
Speaker 4: the same time, they are kind of in the place
Speaker 4: it standstill or some kind of like foremost stand still,
Speaker 4: meaning that they don't need to pay coupon and the
Speaker 4: one is going to sue them. There's some cases that
Speaker 4: develop us are being sue, but in most cases they
Speaker 4: are able to get away. So that's another reason for
Speaker 4: a practical purpose. So all added together, we sees no
Speaker 4: move in that restructuring.
Speaker 1: Christy Dan, what do you both see as far as
Speaker 1: contagion risk? It could ripple in any number of directions.
Speaker 1: You've got to exposed bondholders. HSBC and Blackrock are both
Speaker 1: major bondholders. There's of course other developers, banks, other lenders, creditors,
Speaker 1: asset managers, property buyers and owners. What do we know
Speaker 1: about contagion risk? How bad could it be? Who's most
Speaker 1: at risk? Tell us what you're thinking.
Speaker 3: I think within the developers space after country garden biers
Speaker 3: are going to question you know, can I trust in
Speaker 3: any private developers in China and the pres projects And therefore,
Speaker 3: you know, for the small amount of developers that are
Speaker 3: still left standing, the cells are going to suffer and
Speaker 3: so as the liquidity and we do expect a second
Speaker 3: wave of liquidity crisis, and that could wipe out most
Speaker 3: major players in the private sector in a China property space.
Speaker 1: It becomes a toxic feedback loop, doesn't it.
Speaker 3: Yes, And if you look at developers like Agile Season,
Speaker 3: they have even weaker cash coverage of short term debt
Speaker 3: than Country Garden as of end twenty twenty two, and
Speaker 3: they're similarly focused on China's low tier city so their
Speaker 3: liquidity would be something that we'll be watching in the
Speaker 3: next six months.
Speaker 1: I was going to mention Warren Buffett is famous for
Speaker 1: saying there's never just one cockroach in the kitchen. We've
Speaker 1: already seen many developers, not just Country Gardener ever Grant
Speaker 1: tumble into distress. But it's not a stretch. I think
Speaker 1: others are at risk, as you just mentioned.
Speaker 4: I think, yeah, being this way for a second or
Speaker 4: the impact depends on the situation to the banking sector
Speaker 4: in an other ways, given the bank's exposure to developers
Speaker 4: and also like potential delay in mortgage installments on.
Speaker 2: So, yeah, Daniel, that's an interesting point. Over the weekend
Speaker 2: there was news that a major Chinese trust company missed
Speaker 2: a payment, sparking concerns posed by wealth products issued by
Speaker 2: I guess the shadow banking sector if you'd like to
Speaker 2: call it. Is there any relationship between these wealth products
Speaker 2: and developers.
Speaker 3: So, property developers have been big issuers of truts loans
Speaker 3: and that is one of the major funding channels too,
Speaker 3: in addition to on shore offshop bonds as well as
Speaker 3: bank lending. So, as Dan mentioned, you know a big
Speaker 3: chunk of private developer issuers. They have either extended or
Speaker 3: defaulted on the debts. The issues with the delinquency of
Speaker 3: these truts products are going to continue to emerge, and
Speaker 3: my continuity to see more headlines hitting the market.
Speaker 1: Christy, Dan paint the picture for us. How do you
Speaker 1: both see this drama unraveling? It's not going to stop
Speaker 1: with Country Garden. Christy, you just suggested, do regulators intervene?
Speaker 1: Do bankers intervene? What's the endgame? What do you see
Speaker 1: three six months down the road? Right?
Speaker 3: I think country Guidance event tells us that most of
Speaker 3: China's private developers could be wiped out from the market.
Speaker 3: And the scary thing is private developers in China account
Speaker 3: for about sixty five percent of home sales in twenty
Speaker 3: twenty one, and if most of them cannot survive, you
Speaker 3: can expect the supply pipeline that is going to come
Speaker 3: for China. And I think in the near to medium
Speaker 3: term you will see a property sector that's predominated by
Speaker 3: just most these state owned developers, and for perfect developers,
Speaker 3: that market presence will continue to languish. And I think
Speaker 3: for housing as a commodity is going to become more
Speaker 3: and more boring. You know, housing in China that have
Speaker 3: generated so much investment appeal during twenty one six to
Speaker 3: twenty twenty. And for the trends in terms of new
Speaker 3: home cells, you can see from the example that the
Speaker 3: US took around seventeen years to make it back to
Speaker 3: pre crisis level in twenty oh five, and it was
Speaker 3: like a V shape recovery that happened over seventeen years.
Speaker 3: But for China, we think that new home cells likely
Speaker 3: would never make it back to pre crisis Level's going
Speaker 3: to be an L shaped and the size of new
Speaker 3: home cells already shrunk thirty percent in twenty twenty two,
Speaker 3: and I think I'll just continue to see protracted contraction
Speaker 3: from here.
Speaker 1: That's a pretty downbeat assessment. Daniel Fan, is there any
Speaker 1: upside for.
Speaker 4: Fixing her market? I think it's a little bit difficult
Speaker 4: to see upside because of the shinking of their market,
Speaker 4: especially in the higher area. So fund managers basically they
Speaker 4: may head for two directions. One is fight for quality,
Speaker 4: so meaning that they will do more investment grapeon, and
Speaker 4: also they will diversify away from China.
Speaker 2: I guess so if properly markets are doing poorly, equity
Speaker 2: markets are not doing much better, and same with credit markets,
Speaker 2: then where do investors put their money in China?
Speaker 4: I think it's a little bit difficult to justify the
Speaker 4: core on China. There are already some fund managers looking
Speaker 4: at Japan and Australia, so make Asia like a bigger Asia.
Speaker 4: Usually in the past we talk about Asia, it's always
Speaker 4: Asia is Japan and we don't usually include Australia into
Speaker 4: the picture. But now it seems the situation is changing.
Speaker 4: We have a bigger Asia.
Speaker 3: Yeah, And I think Shani Wong our analysts covering brokerages
Speaker 3: and Stephen covering insurance. They have been happening on how
Speaker 3: we have been seeing more self bound Thlough going into
Speaker 3: insurance products in Hong Kong because it offers higher you know,
Speaker 3: related to the US in the US, and we're also
Speaker 3: seeing more investments into mutual fund products in China.
Speaker 1: Christy Daniel, Let's say I'm sitting in the US, I'm
Speaker 1: listening to this podcast and I'm thinking, well, this is interesting,
Speaker 1: but this crisis is happening in China. It's far away,
Speaker 1: but it goes beyond that, doesn't it. The impact is
Speaker 1: real and the impact goes beyond China's borders. Talk a
Speaker 1: little bit about that.
Speaker 4: I think for US investors, the impact is there, especially
Speaker 4: for Country Garden because at one point it was investment grade.
Speaker 4: So there's some US investors they use Country Garden as
Speaker 4: a protzy to invest in China. So in this scenario,
Speaker 4: they may need to rethink what they need to do
Speaker 4: in Asia, including China. China is a bit portant, especially
Speaker 4: in the physical market for Asia.
Speaker 3: Yeah, and a lot of institutional investors are evaluating the
Speaker 3: case of investing in China. We've been hearing how foreign
Speaker 3: investors are talking about Chinese these physical properties as something
Speaker 3: that they wouldn't touch because of just the diet our
Speaker 3: look in the market, and how it's very hard to
Speaker 3: liquidate those assets.
Speaker 1: And both of you have spent countless hours following this
Speaker 1: drama researching the financial distress among the developers as it unfolds.
Speaker 1: Are there any lessons looking back that have come across
Speaker 1: your mind that we can draw from China's housing crisis.
Speaker 3: I was just having a conversation with Dan the other
Speaker 3: day and we mentioned how we have been reflecting on
Speaker 3: the policy actions in China in the past eight to
Speaker 3: ten years. And remember how China opened up on shop
Speaker 3: on issuance to develop her in twenty fifteen, and that
Speaker 3: is followed by five years of housing boom. And because
Speaker 3: developers they have such ease in raising funding, whether it's
Speaker 3: from the on chopbon market or from the off shop
Speaker 3: on market. Because then was talking about how you was
Speaker 3: close to zero for safe or risk free securities, whereas
Speaker 3: for Country Garden or other developers, the US are just
Speaker 3: so appealing, and that attracted a lot of offshore funding
Speaker 3: for developers too, and with those money, developers they went
Speaker 3: on shore to buy a lot of land, they speculated
Speaker 3: on land, land prices jump and therefore home prices jumped,
Speaker 3: and when investors saw the home presses jumped more appiling
Speaker 3: in to invest in property, and that caused the housing
Speaker 3: brewmen the past five years. And then there came the
Speaker 3: three Red lines through in two tho nineteen that basically
Speaker 3: popped the bubble for Evergrand and most of the other
Speaker 3: private developers that followed. And I think the course of
Speaker 3: events that is unvoting before us, I would still say
Speaker 3: that majority of it could be a result of policy actions.
Speaker 3: So we need to reflect on how policies could come
Speaker 3: sometimes too late, to bring back the balance in the market.
Speaker 2: I feel like we should end this podcast on a
Speaker 2: positive note. Is there any super lining to this story anyone?
Speaker 4: I think if we take policy aside, we locate it
Speaker 4: as a kind of like cythnical down tern Purely from
Speaker 4: the financial market perspective, it's not that unpredictable because if
Speaker 4: you look at the funding situation, the bond issues appeared
Speaker 4: in twenty nineteen, so in how you market the maturities
Speaker 4: three to five years, so it's pointing to probably twenty
Speaker 4: twenty two and twenty twenty four kind of range for maturities,
Speaker 4: so that is written down like a few years ago.
Speaker 4: And the other thing is, as Christie mentioned, the fundamentals
Speaker 4: over supply versus demand. I think ever since twenty seventeen
Speaker 4: when also Born market open, a lot of developers they're
Speaker 4: talking about their the glow that top live three times,
Speaker 4: so meaning that supplies coming, but at the same time,
Speaker 4: demand on the hard side is like on the slow side,
Speaker 4: given if you look at the TTV growth in China,
Speaker 4: so that's kind of a mismatched. So now we can
Speaker 4: draw some kind of conclusion we are very close to
Speaker 4: a bottom from a cythnical perspective, if there's like eternal
Speaker 4: run in the macroeconomy, hopeful that we could see a
Speaker 4: bull market lightly in twenty twenty six to twenty twenty seven.
Speaker 1: A little bit of a weight, but our fingers are crossed.
Speaker 3: Yeah, And I think in the longer term, we are
Speaker 3: still positive about housing market in tier one cities or
Speaker 3: stronger tier two cities like shan Jan Hanjo, and we
Speaker 3: have been visiting projects. We've been seeing correction in prices
Speaker 3: in even those largest cities. So I think if you
Speaker 3: are an investor in the physical market. It's not a
Speaker 3: bad entry point to consider in the coming one to
Speaker 3: two years as prices spots home.
Speaker 1: We've been talking China's property crisis with Christy Hog and
Speaker 1: Daniel Fan, both senior analysts with Bloomberg Intelligence. Christy Daniel
Speaker 1: has been a compelling story and your expertise and your
Speaker 1: insights have really got a long way toward helping us
Speaker 1: unschool this and better understand it. And we look forward
Speaker 1: to following your research and to hearing more from you
Speaker 1: as it unfolds.
Speaker 3: Thank you, Tom, great pleasure to be here.
Speaker 2: I'm Tom mccorbett in Hong Kong, and I'm John Lee.
Speaker 2: This podcast was edited by Clara Chen and you've been
Speaker 2: listening to the Asia Centric podcast