The bottom line: Stress is easing but still challenging times

Financial stress eased a bit last week after Evergrande dodged the default for now and officials have become more vocal about the crisis highlighting that risks can be controlled.

We may have passed the ‘peak stress’ levels in the Evergrande crisis but it is still too early to make a final verdict. We doubt that Evergrande will avoid a default but has probably just postponed it.

The stress level is still high in China’s property sector due to falling home sales and financing channels being severely squeezed.

The Chinese government should have the tools to control the crisis, as it can underpin home sales by moderate easing of housing policies and support financing to healthy developers through state banks.

We keep a close eye on home sales, though, as it could decline further if buyers become uncertain of buying from developers. Or they could choose to only buy from state owned developers, that are deemed more safe. This would be a serious blow to private developers.

The downward pressure on growth from the property crisis, Covid outbreaks and the energy crisis will continue in coming quarters.

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