<div id="readability-page-1">HSBC, whose relatively bullish view on China’s residential property sector ranks as one of the bravest calls in markets, said in February that 2025 would mark an inflection point for the ailing industry. “We’ve long anticipated government intervention, pent-up demand and a necessary market correction to drive a gradual recovery in property sales – and we’re seeing signs of all of that playing out now,” HSBC said at the time.\nThese green shoots, however, were confined to first-tier cities and had more to do with shallower declines in the prices of new and second-hand properties than with outright increases in home values. Moreover, signs of a reacceleration in the pace of contraction were already apparent at the end of the first quarter of this year.\nIn a report on November 13, HSBC said “some cracks are starting to surface after a recovery”, while “the pace of destocking is falling short of our expectations, primarily due to weakening sales momentum”. The reality is that there was never a recovery in the first place. Even a stabilisation of China’s housing market has proved elusive. This partly explains why state-backed China Vanke – one of the last big developers to have so far averted a default – is teetering on the brink of financial collapse.\nOn November 26, Vanke proposed delaying repayment on a yuan-denominated bond for the first time, causing the prices of some of its dollar-denominated bonds to fall into distressed territory and heightening concerns over Beijing’s willingness to support even the largest vulnerable developers.\nFollowing Vanke’s announcement, S&amp;P Global Ratings said the risk of a “distressed restructuring” in the next six months had risen and that Vanke’s debts – which include a bond maturity wall of 11.4 billion yuan (US$1.6 billion) between December and May 2026 – were “unsustainable due to its weak liquidity”. Two years ago, the prospect of Vanke defaulting would have caused turmoil in China’s markets. Now, the MSCI China Index, which tracks Chinese companies listed at home and abroad, rose 2.8 per cent last week.\nThe negligible spillover effects show the extent to which the policy and market landscape in China has changed since the eruption of the housing crisis in 2021. First, Beijing has loosened policy towards the sector significantly since 2023, announcing several rounds of measures to stimulate demand. Further easing, including interest rate subsidies and income tax rebates for mortgage borrowers, is likely to be in the works.\n\n\nMore comprehensive measures to clear the huge backlog of unsold and unfinished homes are costly and complex. They also sit uncomfortably with the government’s prioritisation of high-end manufacturing as the core driver of growth. Still, at a time when market expectations for further support for China’s property market are low, “any news on policy is viewed as good news”, HSBC said.\nSecond, exports have performed remarkably well this year in the face of US President Donald Trump’s trade war. Morgan Stanley expects net exports to make a 1.4 percentage point contribution to overall GDP growth this year, on a par with 2024. This has helped compensate for the multi-year drag from the downturn in residential property.\nThe resilience of China’s exports has inflamed trade tensions, with the country’s current account surplus hitting an all-time high last quarter, driven by a record goods trade surplus. It has also underscored the strength and competitiveness of the country’s supply chains, as well as its technological prowess.\nThird, the tech-driven surge in Chinese stocks – the MSCI China index is up more than 30 per cent this year, compared with a 16.5 per cent rise for the benchmark S&amp;P 500 index – has changed the market narrative around China. The property crisis barely gets a mention in equity research reports on China.\n\n\nMorgan Stanley said there had been a shift in the perception of China as “a deflationary/macro-slowdown story towards one of an innovation and hard-core technology breakthrough”. Moreover, the fierceness of the stock market rally has made Beijing reluctant to act more forcefully in the property sector. Policymakers feared the equity market would become “overly inflated if they step up policy support”, Nomura said.\nFourth, most investors are no longer exposed to Chinese real estate, which limits the fallout from Vanke’s financial woes. The wave of defaults and value destruction in the sector has reduced Chinese real estate’s weighting in Asian high-yield, or non-investment grade, corporate bond indices.\nWhile Chinese developers accounted for 35 per cent of Asia’s high-yield bond index in the second quarter of 2021, their share had fallen to less than 10 per cent by the second quarter of 2024. Furthermore, the default rate of Asian high-yield issuers excluding Chinese developers has historically been lower than in the US high-yield market.\n\nHowever, while the market and policy landscape has changed, households, developers and creditors are suffering the consequences of a renewed intensification of the downturn in the property sector, even in first-tier cities.\nNomura believes Beijing will eventually be forced to introduce more aggressive measures to stabilise the sector, including a stronger focus on destocking. Even so, it admits the “easy-to-implement policies have been used up” and that the timing of more comprehensive measures is “highly uncertain”.\nThe collapse of China’s residential real estate sector has been a long, drawn-out crisis. The lack of pressure from markets and the government’s reluctance to take much more forceful action make it more likely that the crisis will drag on for a long time yet.\n</div>

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<p>China Vanke, a major developer, is facing financial collapse, proposing to delay bond repayments. Despite this, China's market remains stable due to policy changes, strong exports, and a tech-driven stock surge. Vanke's woes highlight shifts in investor exposure and market dynamics since the 2021 housing crisis. The MSCI China Index rose 2.8%, showing limited market impact.</p>

Why China Vanke’s debt woes have barely made a ripple in markets