Beijing Says Troubled Developers Should Go Bust

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China’s housing minister said Beijing will not be bailing out the country’s distressed property developers.

“Real-estate companies that are seriously insolvent and have lost their operating capabilities must go bankrupt and be restructured in accordance with the principles of the rule of law and marketization,” Ni Hong, China’s minister for housing and urban-rural development, said at a press briefing on Friday.

Ni’s statement provides insight into how Beijing plans to handle its years-long real-estate crisis. Authorities have been rolling out measures to boost demand in the sector without reinflating its property bubble.

China’s real-estate debt crisis has already taken down property giant Evergrande, which is currently undergoing liquidation. Country Garden, another real-estate behemoth, is also facing a liquidation petition filed in Hong Kong that will be heard in May.

It’s not the first time Beijing has expressed the sentiment that China’s deeply troubled real-estate companies need to be allowed to fail, but the timing of Ni’s comment is notable.

Chinese leader Xi Jinping’s slogan, “Houses are for living in and not for speculation,” has been part of Beijing’s party line since 2016. However, it was omitted from Chinese Premier Li Qiang’s government work report draft at China’s annual parliamentary session last week — sparking speculation that the country is relaxing its crackdown on debt in the sector. Ni’s comments have served to dispell such speculation.

“The task of stabilizing the market remains arduous,” Ni said on Friday. He added that Beijing will improve home sales in a “forceful” but “orderly” fashion.

Ni statements are an indication that even though local governments are allowed to loosen their policies, there’s no policy shift for China’s housing sector, Nomura analysts Jizhou Dong and Riley Jin wrote in a note on Monday.

“Minister Ni has made it clear that non-functional developers that are insolvent should go through bankruptcy or restructuring process, as the government’s priority is to ensure delivery of property projects, not to protect the business of property developers,” wrote the Nomura analysts.

“We view the tone on the property sector set at the ‘Two Sessions’ as negative,” they added, referring to China’s parliamentary sessions.