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Extract from our "An Update on the China Property Sector" research paper, published on the 24th August 2023. Register for a free trial* to access the full paper.

China’s property sector is big, but not overwhelmingly big, compared to the cycle that Japan had in the late-1980s: on some measures, Japan’s property bubble was 30x that of China’s. The trigger for the current malaise in the property sector was proactively induced by policies: Beijing wanted to prevent the property bubble from growing further to put China in a dire straits similar to Japan a generation ago. As the property sector faces an intentional liquidity crunch, the government has remained steadfast in not giving the sector regulatory relief or credit relief. This has surprised investors, including ourselves: we had thought that the government would at least calibrate its regulatory policies so as not to undermine general confidence. As it stands now, we believe Beijing might continue to exert pressure on the property sector or at least withhold muscular stimulus until the risks of a bubble are purged. The uncertainty for investors stems from how much longer Beijing will ‘hold-the-head-under-water’ for this sector. In our view, an implosion of China’s economy – which is becoming a popular narrative is not at all preordained: Beijing is still in control of how much pain is inflicted on the property sector. In the meantime, however, some private property developers (such as Country Garden) will likely not be rescued by the government. We believe that Beijing’s pain threshold is higher than that of the economy, but are not certain by how much. In any case, there is a threshold, and when it is breached, there will certainly be remedial policy actions from Beijing, we believe, to stem the descent of the property sector and the economy in general.


The full report contains the following sections:

  • How important is the property sector in China?
  • What are the recent performance stats of this sector?
  • What are the recent performance stats of this sector?
  • How good are the data for the property sector in China?
  • What were the three red lines for the property sector?
  • Why did the three red lines matter?
  • Are SOEs in better shape than POEs?
  • Country Garden (Cogard): what is the situation?
  • Are property companies trying to complete the ongoing projects?
  • How is the trust default crisis related to real estate?
  • What do we know about the defaults that have happened so far?
  • Will China follow the footsteps of Japan in the 1990s?
  • Is China overly-indebted?
  • Why has the government been so reluctant to provide policy stimulus?
  • How would a slowing China impact the rest of the world?
  • Bottom line

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