China has requested financing from 12 banks for the troubled state-owned real estate firm, Vanke Group, in a departure from their recent trend of allowing insolvent property developers to go bankrupt. This decision comes after the housing and urban-rural development ministry’s vow to let struggling developers face their own consequences, exacerbating a crisis in the sector that was once a major economic driver.
While companies like Evergrande Group and Country Garden Holdings were left to deal with soaring debts on their own, Vanke, partially owned by the Shenzhen government, is receiving support from the State Council under the leadership of Chinese President Xi Jinping’s push for state enterprises over the private sector.
The State Council has urged financial institutions to move quickly in providing assistance and has encouraged creditors to consider extending private debt maturity. Reports indicate that these institutions are expected to raise up to 80 billion yuan (US$11.1 billion) for Vanke, although some banks are maintaining a cautious approach.
Shaky ground
Despite this support, Vanke’s credit rating has been downgraded to “junk” by Moody’s, citing concerns about declining sales and funding access amidst a prolonged downturn in the Chinese property market.
The government’s decision to rescue Vanke has sparked discussions online, with some questioning the selective support for Vanke over other struggling companies like Evergrande. Others worry about the strain on national resources during a period of slower economic growth.
Some experts believe that Beijing’s support for Vanke is rooted in its state-owned status, as the failure of such assets would reflect poorly on the Communist Party’s ability to manage enterprises.
Chinese banks have a significant amount of mortgage loans tied to real estate, and while assisting Vanke may delay a crisis, it does not address the underlying issues that could lead to a larger financial meltdown.
Experts caution that the current rescue efforts may only postpone a crisis, potentially turning banks into “zombies” in the future. The intertwining of the real estate and banking sectors poses a significant risk to China’s economic development.
Edited by Taejun Kang and Mike Firn.