Yuan rallies as domestic property sector declines continue

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By :  ,  Financial Writer


China saw little market-moving economic or financial news last week. The continuing slow-motion decline of its property sector dominated the headlines as more property companies and now wealth managers reported an inability to repay their debts. The continuing yuan rally was the highlight, likely supported by domestic intervention by the People’s Bank of China. Chinese November PMIs are due on Thursday morning, and traders will watch to see if the upturn in the domestic economy measures (retail sales) overrides issues like troubled exports, weak investment, and threats from the property and shadow banking sector.


China exerted little influence on global markets last week other than seeing its currency rally versus other major cross-rates.


  • Chinese stock markets were unchanged last week, with the Shenzhen Composite Index off 1.3% while the Shanghai Composite Index was unchanged. China’s stock market started this week with a softer tone on Monday as the Shanghai Composite Index retreated by 0.3%, while the Shenzhen Composite Index fell by 0.55% from the previous close.
  • The offshore yuan continued to rally last week with traders crediting intervention by the People’s Bank of China, rising 1.1% versus the dollar from $/CNH 7.2234 to $/CNH 7.1474. The yuan has rallied from a low point of $/CNH 7.3683, some three percent.


Another property developer delays debt payments

  • Another of China’s big commercial property developers, Wanda, delayed payments on a dollar debt of $600 million due in January
  • The company has two other loans due in 2025 and 2026, totaling $800 million
  • China’s property sector has witnessed more than $100 billion worth of bond defaults in three years
  • The default rate for high-yield property bonds has reached 42.2 % this year, following a record-high 46.8% last year, according to Goldman Sachs

Shenzhen eases mortgage policies

  • Shenzhen City, China’s tech hub and an economic center in South China, relaxed mortgage policies to revive the property market
  • Shenzhen will apply a lower down payment ratio, cutting the ratio for second-time buyers to 40% from 70%
  • Beijing and Shanghai are amongst the few cities still enforcing strict mortgage policies

Fitch sees property sale decline slowing next year

  • The Fitch rating agency expects property sales in China to fall by less than 5% next year, slowing from 10% in 2023 but still painful for the economy
  • Weak property sales will still challenge China’s capability to handle the related debt problems
  • Chinese financial regulators are building a list of favored real estate companies to support and receive greater support

Wealth manager can’t repay its debts

  • Beijing-based wealth manager Zhongzhi reported it couldn’t repay its debts, with total liabilities of between 420-460 billion yuan ($59-64 billion) and total assets stood at just 200 billion yuan ($28 billion)
  • This set off alarm bells in the trust sector and other financial products, which were also deeply rooted in real estate assets

Steel output slumps

  • Steel products’ output among major steel millers hit its lowest level since February 2023 due to lower investment in property and infrastructure
  • China produced 19.69 million metric tonnes (MMT) of crude steel, 0.1% down month-on-month and 1.6% lower year-on-year in November
  • Production of pig iron was 18.55 MMT, 0.34% down month-on-month and 2.3% lower year-on-year

Supply-chain expo demonstrates domestic strength

  • China will host a Supply-chain expo this week to demonstrate its self-sustained manufacturing industry as Western countries reduce reliance on Chinese manufacturing
  • The event will focus on five sectors: smart vehicles, agriculture, clean energy, digital technology, and health
  • Around three-quarters of participating companies are local enterprises and only one-quarter are foreign companies (half of which will be from countries participating in the Belt and Road Initiative)

China-Saudi FX swap

  • China and Saudi Arabia, its key energy supplier, have signed a local currency swap deal worth 50 billion yuan ($6.98 billion) over three years
  • China signed similar deals with the UAE in 2012, Qatar in 2014, and Egypt in 2016
  • The deal facilitates oil trade based on the yuan rather than dollars
  • Saudi Arabia was the top oil supplier for China, with about one-quarter of its crude oil going to China in recent years
  • This is a step forward for China to expand its yuan’s internalization footprint

Foreign direct investment (FDI) falls sharply

  • Chinese FDI, a measure of the country’s appeal to foreign investors, fell sharply to 987 billion yuan ($137 billion), below the 1.09 trillion yuan ($151 billion) in the same period last year
  • FDI fell 9.4% year-on-year ending October, down from the 8.35% decline in September
  • This could be a long-term drag on China’s export-oriented and manufacturing businesses
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