Beijing Sends Warning With Evergrande

By Richard Frost, Bloomberg markets live commentator and reporter

China’s authorities are sending a clear signal that there will be no let up in their crackdown on the property market, meaning the industry will remain a concern for investors for some time to come.

Local governments are getting tough, with an order that Evergrande demolish 39 buildings in 10 days the latest extreme example. The timing and urgency of the demand is notable for a project that’s been problematic since at least 2018, when an official report showed it was inflicting damage to a vast area of coral reef.

Similarly, the Shenzhen government’s bailout of China South City last week was heavily discounted, which “may indicate the state conducted very tough M&A price negotiations,” according to Bloomberg Intelligence credit analyst Andrew Chan. And the removal of a statement by authorities in Heilongjiang last month pledging “all out efforts” to support the property sector suggested it wasn’t the message the central government wanted to send.

Beijing’s plans for the property industry has become a center of global investor focus, given its vital importance to the world’s second-largest economy. Evergrande has led a wave of defaults, with at least six developers failing to pay debts on time in the last quarter. Firms are being squeezed by a slump in sales, elevated borrowing costs and the economic slowdown. Contracted sales for 31 listed property companies fell 26% in December from a year earlier, according to Citigroup analysts.

A gauge of Chinese property stocks slid 1.7% on Monday to near an almost five-year low. On a price-to-book basis, the index is approaching the cheapest level since at least 2005. The measure rose in the previous two weeks amid speculation officials would dial back curbs on the industry to limit the impact on the economy.