1 00:00:02,400 --> 00:00:10,000 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. I'm Stephen Caroll, and 2 00:00:10,039 --> 00:00:12,280 Speaker 1: this is Here's Why, where we take one news story 3 00:00:12,360 --> 00:00:14,319 Speaker 1: and explain it in just a few minutes with our 4 00:00:14,360 --> 00:00:15,920 Speaker 1: experts here at Bloomberg. 5 00:00:19,280 --> 00:00:23,239 Speaker 2: It was the nation's biggest property developer, a household name. 6 00:00:23,480 --> 00:00:26,040 Speaker 2: So when they fall, it is a reflection of the 7 00:00:26,160 --> 00:00:29,760 Speaker 2: falling of the wider sector, the popping of China's property bubble. 8 00:00:29,800 --> 00:00:31,960 Speaker 1: If you're already some science, as this is broadening to 9 00:00:32,120 --> 00:00:35,120 Speaker 1: not just an overgrind issue. China's authorities trying to rescue 10 00:00:35,120 --> 00:00:38,760 Speaker 1: a third property developer from plunging into default. 11 00:00:38,800 --> 00:00:41,560 Speaker 2: It's a problem for China, it's a problem for challenging market, 12 00:00:41,720 --> 00:00:43,320 Speaker 2: it's a problem for the bank. So it's going to 13 00:00:43,400 --> 00:00:45,960 Speaker 2: be a long road through what's recovery for the China 14 00:00:46,040 --> 00:00:49,640 Speaker 2: property sector. We might still see this continued consolidation and 15 00:00:49,680 --> 00:00:52,200 Speaker 2: reduction in the number of property developers in China. 16 00:00:52,760 --> 00:00:55,640 Speaker 1: It's one of China's biggest growth drivers. But the country's 17 00:00:55,680 --> 00:00:59,040 Speaker 1: property market has been in a downward spiral for years. 18 00:00:59,600 --> 00:01:03,560 Speaker 1: Prices have claimed many victims, including what was once the 19 00:01:03,560 --> 00:01:08,320 Speaker 1: country's biggest developer by sales, ever Grand. Since twenty twenty two, 20 00:01:08,480 --> 00:01:11,240 Speaker 1: Beijing has been taking steps to try to rein in 21 00:01:11,280 --> 00:01:14,720 Speaker 1: a market that had gone too far, but the property 22 00:01:14,720 --> 00:01:18,200 Speaker 1: slump continues to weigh on the economy and more builders 23 00:01:18,360 --> 00:01:22,280 Speaker 1: are at risk of collapse. Here's why China can't sort 24 00:01:22,360 --> 00:01:28,160 Speaker 1: out it's property market mess. Lulu Chen, who leads our 25 00:01:28,200 --> 00:01:30,600 Speaker 1: team covering real estate in Asia it joins me now 26 00:01:30,840 --> 00:01:34,760 Speaker 1: for more, Lulu, what's gone wrong in China's property sector? 27 00:01:35,600 --> 00:01:38,760 Speaker 2: If you take a broader step back, the longer term 28 00:01:38,840 --> 00:01:42,320 Speaker 2: prospects of China's property market going up forever and never 29 00:01:42,520 --> 00:01:45,880 Speaker 2: was never sustainable. The country has reached a point whereas 30 00:01:45,959 --> 00:01:51,280 Speaker 2: population growth is slowing and also supply and demand is 31 00:01:51,320 --> 00:01:55,120 Speaker 2: basically at an equilibrium. If you talk to some analysts, 32 00:01:55,320 --> 00:01:58,360 Speaker 2: you know, people ask just what was the trigger? And 33 00:01:58,480 --> 00:02:01,720 Speaker 2: it's hard to pinpoint. If we had to put a 34 00:02:01,760 --> 00:02:06,040 Speaker 2: timestamp on when the effects of the property crisis came 35 00:02:06,080 --> 00:02:10,440 Speaker 2: into full swing, it probably happened after the government itself 36 00:02:10,480 --> 00:02:14,519 Speaker 2: tried to pop the bubble by implementing a rule called 37 00:02:14,840 --> 00:02:19,320 Speaker 2: three Red lines, and that policy itself was to curb 38 00:02:19,360 --> 00:02:23,000 Speaker 2: the amount of debt that China's property developers could take on. 39 00:02:23,520 --> 00:02:28,400 Speaker 2: After that, the vast majority of real estate companies had 40 00:02:28,520 --> 00:02:33,680 Speaker 2: trouble accessing credit, which quickly then spiraled to difficulty to 41 00:02:33,960 --> 00:02:37,799 Speaker 2: pay their debts, and also they got locked out of 42 00:02:38,000 --> 00:02:41,280 Speaker 2: the debt market, and then quickly it spiraled from there 43 00:02:41,320 --> 00:02:45,400 Speaker 2: where you started seeing the biggest developers, including Evergrand, having 44 00:02:45,440 --> 00:02:49,840 Speaker 2: financial troubles and then companies not being able to finish 45 00:02:49,880 --> 00:02:54,600 Speaker 2: the construction projects that they already pre sold to buyers 46 00:02:55,000 --> 00:02:58,280 Speaker 2: more than four years on. As of now, the country's 47 00:02:58,400 --> 00:03:03,680 Speaker 2: property prices are still falling, and also new home sales 48 00:03:03,800 --> 00:03:07,040 Speaker 2: transactions are also steepening their decline. 49 00:03:07,600 --> 00:03:12,040 Speaker 1: So with that context in mind, what has Beijing tried 50 00:03:12,120 --> 00:03:15,480 Speaker 1: to do about the issue that was created by those 51 00:03:15,480 --> 00:03:17,799 Speaker 1: measures they put in place back a few years ago. 52 00:03:18,440 --> 00:03:21,840 Speaker 2: Short answer is, the big Bazuka that people have been 53 00:03:21,880 --> 00:03:28,040 Speaker 2: waiting for has never really arrived. They've issued many, many 54 00:03:28,040 --> 00:03:31,680 Speaker 2: sweeping measures trying to mend the issue, but we're not 55 00:03:31,919 --> 00:03:36,600 Speaker 2: seeing like a massive bailout for developers that never came. 56 00:03:36,760 --> 00:03:42,040 Speaker 2: They have eased financing for some developers and also have 57 00:03:42,360 --> 00:03:47,000 Speaker 2: asked banks to ensure growth in residential mortgages. Some other 58 00:03:47,240 --> 00:03:51,840 Speaker 2: incremental measures. They've relaxed home sales curbs in most of 59 00:03:51,960 --> 00:03:56,840 Speaker 2: Chinese cities. Also, the government has pushed out some infrastructure projects, 60 00:03:56,840 --> 00:03:59,840 Speaker 2: but not at the level that people think would completely 61 00:04:00,120 --> 00:04:05,240 Speaker 2: reverse or inject a massive flooding of liquidity into the market. 62 00:04:05,480 --> 00:04:09,280 Speaker 2: But the country is looking at incremental steps to help 63 00:04:09,640 --> 00:04:13,520 Speaker 2: renovate so called urban villages, which is these patches of 64 00:04:13,560 --> 00:04:16,279 Speaker 2: neighborhoods and cities that are underdeveloped. 65 00:04:16,640 --> 00:04:19,360 Speaker 1: So what sort of effect have those measures had. What's 66 00:04:19,400 --> 00:04:22,240 Speaker 1: the current situation in the market and for developers. 67 00:04:23,160 --> 00:04:27,839 Speaker 2: The media effect is that the scare that people had 68 00:04:28,440 --> 00:04:33,200 Speaker 2: thinking that this would be a complete financial contagion collapse, 69 00:04:33,600 --> 00:04:38,360 Speaker 2: that moment never came. So even with all the developer 70 00:04:38,600 --> 00:04:44,080 Speaker 2: companies being liquidated or falling into distress, China's financial markets 71 00:04:44,120 --> 00:04:48,600 Speaker 2: have largely remained firewalled from all of this. And part 72 00:04:48,640 --> 00:04:52,359 Speaker 2: of it is because the banks that led to these 73 00:04:52,480 --> 00:04:55,960 Speaker 2: real estate companies, huge parts of the loans are just 74 00:04:56,040 --> 00:05:00,240 Speaker 2: being postponed in payment, so they get rollovers. And then 75 00:05:00,400 --> 00:05:03,200 Speaker 2: I think for the developers themselves, if you look at 76 00:05:03,240 --> 00:05:06,719 Speaker 2: all the developers who have been still buying land in 77 00:05:06,760 --> 00:05:11,599 Speaker 2: the past year, it's largely state developers. Private companies are 78 00:05:11,800 --> 00:05:15,919 Speaker 2: largely out of the market now and the biggest companies 79 00:05:15,960 --> 00:05:20,560 Speaker 2: that used to dominate the market, Country Garden, Vankee evergrad 80 00:05:20,839 --> 00:05:24,560 Speaker 2: these firms are still struggling, and most of the private 81 00:05:24,600 --> 00:05:30,800 Speaker 2: developers are either facing huge significant challenges for restructuring their 82 00:05:30,839 --> 00:05:34,680 Speaker 2: debt or have been outright order to be liquidated. 83 00:05:35,160 --> 00:05:38,520 Speaker 1: What more could the government do in this area? Is 84 00:05:38,560 --> 00:05:40,440 Speaker 1: there political will to act further? 85 00:05:40,960 --> 00:05:44,600 Speaker 2: That's a great question. They could if they wanted to, 86 00:05:44,839 --> 00:05:48,080 Speaker 2: but we're not seeing any signs that the government is 87 00:05:48,160 --> 00:05:52,080 Speaker 2: going to implement that as of now. Everything from the 88 00:05:52,200 --> 00:05:55,520 Speaker 2: very top level, the guidance and the rhetoric that has 89 00:05:55,600 --> 00:05:59,479 Speaker 2: come out of top political meetings this year is that 90 00:05:59,600 --> 00:06:03,000 Speaker 2: they want to avoid flooding the market with a ton 91 00:06:03,040 --> 00:06:07,160 Speaker 2: of money and then over correcting the market. I think 92 00:06:07,200 --> 00:06:11,279 Speaker 2: the ideal scenario that they're trying to aim for is 93 00:06:11,800 --> 00:06:15,640 Speaker 2: just to stop the price declines that as of now 94 00:06:15,720 --> 00:06:17,040 Speaker 2: are still happening. 95 00:06:17,640 --> 00:06:20,600 Speaker 1: What's at stake for the broader Chinese economy here. 96 00:06:20,720 --> 00:06:23,680 Speaker 2: Yeah, there's a lot at stake because so much of 97 00:06:23,800 --> 00:06:27,280 Speaker 2: China's health, household wealth is tied to the property market. 98 00:06:27,400 --> 00:06:31,200 Speaker 2: The country is now trying to revive or trying to 99 00:06:31,960 --> 00:06:38,359 Speaker 2: encourage consumption, but with so much wealth evaporating and tied 100 00:06:38,400 --> 00:06:42,760 Speaker 2: into the real estate market that's still declining, people are 101 00:06:43,160 --> 00:06:48,160 Speaker 2: reluctant to spend. There's also been incidences that really shakes 102 00:06:48,200 --> 00:06:51,480 Speaker 2: the core of the ruling party, which is that during 103 00:06:51,800 --> 00:06:56,599 Speaker 2: the worst chapter of the property crisis, when developers were 104 00:06:56,640 --> 00:07:00,960 Speaker 2: not able to deliver the presold homes, it triggered widespread 105 00:07:01,279 --> 00:07:06,560 Speaker 2: mortgage boycotts and also online protests where people outright refuse 106 00:07:06,680 --> 00:07:10,640 Speaker 2: to pay their bank loans. So these are cases that 107 00:07:10,680 --> 00:07:15,000 Speaker 2: the government wants to avoid, and definitely they are trying 108 00:07:15,040 --> 00:07:18,640 Speaker 2: to make sure that this doesn't escalate into a situation 109 00:07:18,720 --> 00:07:23,440 Speaker 2: where the protests originating from online moved into the real 110 00:07:23,520 --> 00:07:25,800 Speaker 2: world and people take to the streets. 111 00:07:26,040 --> 00:07:28,720 Speaker 1: Okay, Lelie, Thanks very much to Chen. They're leading our 112 00:07:28,760 --> 00:07:33,040 Speaker 1: team covering Asian real estate. Thank you. For more explanations 113 00:07:33,080 --> 00:07:35,680 Speaker 1: like this from our team of three thousand journalists and 114 00:07:35,760 --> 00:07:40,560 Speaker 1: analysts around the world, go to Bloomberg dot com slash explainers. 115 00:07:40,880 --> 00:07:43,840 Speaker 1: I'm Stephen Carroll. This is here's why. I'll be back 116 00:07:43,880 --> 00:07:45,800 Speaker 1: next week with more. Thanks for listening.