Leverage Ratio Up for First Time Since 2020


Debt in China’s real economy climbed to 266.1% of gross domestic product in the first three months of this year, the first increase since the third quarter of 2020, says an article published in Yahoo Finance.

Weak homebuyer confidence

China’s new-home sales tumbled by 29% last month, the most since July, as the latest Covid-19 outbreak threatened to prolong a property slump. “Weak homebuyer confidence remains a key hurdle,” Bloomberg Intelligence analyst Kristy Hung wrote in a note Monday. “Covid’s spread adds additional near-term threats.”

A Bloomberg index tracking Chinese developer shares fell as much as 0.7% Monday. High-yield dollar bonds, dominated by real estate firms, halted a three-week rally on Friday on concerns that Shanghai’s Covid wave may hurt property sales and rental income.

Key Developments:

  • China’s Debt-to-GDP Ratio Rises for First Time Since 3Q 2020
  • China Joblessness Climbs, Spending Drops on Covid Lockdowns
  • China’s Small RRR Cut May Hurt Risk Asset Mood: CreditSights
  • China’s Market ‘Underwhelmed’ by RRR Reduction: Street Wrap
  • China Local Government Arms Lead Declines in Bond Pledge Value
  • Global Investors Flee China Fearing That Risks Eclipse Rewards
  • China’s Central Bank Takes Modest Easing Path Despite Covid (1)

China’s Debt-to-GDP Ratio Rises for First Time Since 3Q 2020 

The leverage ratio for non-financial sectors rose to 157.4% from 153.0% in the previous quarter, with that for the household sector declining to 61.9% from 62.0%.

The ratio for the government sector rose to 46.8% from 46.2% in the previous quarter.

Falling expectations

China’s Small RRR Cut May Hurt Risk Asset Mood: CreditSights

The People’s Bank of China’s latest cut in reserve requirements falls short of expectations and will likely dampen investor sentiment about the country’s risk assets including dollar bonds, according to a report by CreditSights.

The PBOC statement reflects a more cautious tone on inflation and the monetary tightening in developed markets lowers the chance of additional policy rate and RRR cuts in the second quarter, analyst Zerlina Zeng wrote.

China Local Government Arms Lead Declines in Bond Pledge Value

Chinese local government financing vehicles accounted for seven of the 10 corporate notes that saw the sharpest declines last week in the pledge ratio, which determines their worthiness as assets backing loans in the country’s exchange-traded market, according to Bloomberg-compiled data. The state-backed issuers include Xiamen Rail Transit Group and Ningbo Communications Investment Holdings.

The only exception is a note issued by a unit of property developer Country Garden Holdings Co., which topped the list of decliners.

China Home Sales Slump Most Since July as Covid Hurts Recovery

Sales by value dropped 29% in March from a year earlier, according to Bloomberg calculations based on year-to-date figures released Monday by the National Bureau of Statistics.

The March figures don’t show the full impact of lockdowns in Shanghai and some parts of the southern metropolis of Guangzhou that have kept potential buyers away.

China Posts Faster Growth That Masks Hit From Covid Lockdowns

Gross domestic product rose 4.8% in the January-March period from a year earlier, faster than the 4% increase registered in the fourth quarter and higher than the 4.2% median estimate in a Bloomberg survey of economists.

March data showed a marked deterioration in consumption, while production held up, according to the National Bureau of Statistics data released Monday.

China’s Worst Mortgage Slump in Decade May Not Revive on Policy

China personal mortgages, down 17% in the first two months to a record low since the series began in 2012, may not turn around with a slew of measures to lower down-payment ratios, cut mortgage rates and ease home-purchase restrictions. Weak demand will remain a drag, while high household leverage may limit room to ease mortgage curbs, Bloomberg Intelligence analyst Kristy Hung wrote in a report Monday.

Fear of non-completions also could continue to damp occupier and investor demand, and sentiment may improve only with a turnaround in distressed developers’ liquidity. That’s unlikely in the near term without stronger policy support.

Global Investors Flee China Fearing That Risks Eclipse Rewards

A growing list of risks is turning China into a potential quagmire for global investors.

The central question is what could happen in a country willing to go to great lengths to achieve its leader’s goals. President Xi Jinping’s friendship with Russian leader Vladimir Putin has made investors more distrustful of China, while a strongman narrative is gaining momentum as the Communist Party doggedly pursues a Covid-Zero strategy and unpredictable campaigns to regulate entire industries.

Outflows from stocks, bonds and mutual funds accelerated after Russia’s invasion of Ukraine, while Norway’s $1.3 trillion sovereign wealth fund has snubbed a Chinese sportswear giant due to concerns about human-rights abuses. U.S. dollar private-equity funds that invest in China raised just $1.4 billion in the first quarter — the lowest figure since 2018 for the same period.

China’s Property Lending Drive to Have Limited Short-Term Impact

After regulators relaxed some rules on major property firms’ borrowing for acquisition activity, top developers and financial institutions plan to raise at least 216.92 billion yuan ($34 billion) of funds via M&A bond sales and credit lines.

The relatively small amount raised is also a factor behind the lack of deals, said Gary Ng, senior economist at Natixis. Chinese developers need to repay or refinance nearly $90 billion in local and offshore notes the rest of this year, according to data compiled by Bloomberg.

China’s Central Bank Takes Modest Easing Path Despite Covid 

The People’s Bank of China reduced the reserve requirement ratio for most banks by 25 basis points, lower than economists had expected, and dropped it by 50 basis points for smaller lenders. It kept the one-year policy interest rate unchanged, disappointing the majority of economists who predicted a cut.

The modest action indicates restraint from the central bank in the face of interest-rate hikes in the U.S. and elsewhere and rising inflation risks. It also suggests monetary policy easing may have limited effect in boosting growth when most of the pressures are coming from China’s tough approach to combating Covid infections.

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Source: Yahoo Finance


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