China’s real-estate sector has been in turmoil since the momentous default of property developer Evergrande in 2021, which left behind a staggering Rmb2.4 trillion hole.
The situation worsened in the second half of this year, with default risks spreading to top-tier companies such as Country Garden and even state-backed organizations like Vanke.
Banks, now thrust into the role of rescuers, are grappling with the implications of the crisis. Will their efforts end up transferring toxic assets and default risk from developers to banks, positioning the latter in the line of fire?
Rewind to last November. Regulators urged commercial banks to maintain stable financing for developers to ensure housing delivery. This occurred even as banks had been actively decreasing their exposure to developers to control their exposure to the sector.
Banks publicly trumpeted their support for the policy, with a number announcing strategic partnerships with real-estate firms, committing to credit grants ranging from tens of billions to hundreds of billions of yuan. According to the China Index Academy, around 60 banks provided an astonishing Rmb4 trillion ($570 billion) to nearly 100 developers during this period.
However, the reality tells a different story. Few of these credit grants materialized.
