Shares of Country Garden and other top China property developers surge on hopes of new government support

By Louis Goss

Shares in China's top real estate company Country Garden surged on Thursday following a report that the Guangdong developer has been included on a draft list of 50 companies that could be eligible for new government support aimed at fixing the country's property crisis.

Country Garden, which has struggled to repay its overseas debts in recent months amid a slump in China's property market, has been included on a list of 50 property developers potentially eligible for fresh support, Bloomberg reported.

Heavily-indebted developers Sino-Ocean Group and CIFI Holdings, which have both missed debt repayments, are reportedly also included on the draft list, which the Chinese government will start distributing to banks. It is unclear what support the listed firms will be eligible to receive.

Shares in Hong Kong-listed Country Garden (HK:2007) surged 24% on Thursday having fallen 63% over the previous 12 months. Sino-Ocean Group (HK:3377) rose 31% after dropping 38% in the past year. CIFI Holdings (HK:884) climbed 48%, having fallen 69% over the last year.

The draft list signals Beijing's intentions to start shoring up the country's struggling property sector, in the face of a worsening crisis that has left heavily indebted real estate firms unable to sell new homes.

The crisis in China's property market first first emerged following the government's decision in 2020 to introduce its 'Three Red Lines' policy, which limited the extent to which the country's heavily indebted property developers were able to borrow.

The policy placed limits on the amount of debt China's real estate companies were allowed to accrue, based on debt to cash, equity, and assets ratios, due to concerns around the sector's liquidity.

As a result, Chinese house builders were unable to complete pre-sold houses, which led to a slide in sales as buyer confidence collapsed. Plunging sales have, in turn, seen dozens of China's top property developers default on their international debts.

The slump in China's property sector, which accounts for around one-quarter of the country's gross domestic product (GDP), now threatens to spillover into the country's wider economy amid a slowdown that has already seen youth unemployment rise and consumer spending slow.

According to Moody's, China's property sector currently drives 25% of employment in the country's urban areas and accounts for 20% of revenues generated by local and regional governments, who sell land to real estate firms.

The property crisis also threatens to stir up political backlash against the Chinese Communist Party. Last year saw hundreds of protests led by house buyers and construction workers over delayed projects and unpaid wages, according to data from U.S. nonprofit Freedom House.

-Louis Goss

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

11-23-23 0633ET

Copyright (c) 2023 Dow Jones & Company, Inc.