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China pledges $42 billion in a slew of measures to support the struggling property sector (www.cnbc.com)

submitted 6 months ago* (last edited 6 months ago) by [email protected] to c/[email protected]

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These and other measures announced Friday marked Beijing's latest efforts to address issues in the massive real estate sector.

The People's Bank of China will provide 300 billion yuan ($42.25 billion) to financial institutions to lend to local state-owned enterprises (SOEs) so they can buy unsold apartments that have already been built.

Also Friday, the PBOC removed a floor on mortgage interest rates, and lowered the minimum down payment ratio for first- and second-time home buyers.

BEIJING — Chinese authorities on Friday pledged new support for state-owned enterprises to enable them to buy unsold apartments, in an effort that could help developers get more funding to finish construction on pre-sold properties.

These and other measures announced Friday marked Beijing's latest efforts to address issues in the massive real estate sector.

"I think it is encouraging that the policy is taking a turn of direction trying to support the housing market," said Zhu Ning, a professor of finance at Tsinghua University and author of the book "China's Guaranteed Bubble."

People's Bank of China Deputy Governor Tao Ling told reporters at a briefing Friday the central bank would provide 300 billion yuan ($42.25 billion) to financial institutions to lend to local state-owned enterprises (SOEs) so they can buy unsold apartments that have already been built.

The central bank expects the support to release 500 billion yuan in financing for such purchases, which the SOEs could turn into affordable housing.

The real estate companies can then use funds earned from those sales to complete construction on other apartments, the central bank said.

As for unfinished, pre-sold properties, the National Financial Regulatory Administration Deputy Director Xiao Yuanqi told reporters that commercial banks have provided 935 billion yuan in loans to finish construction on whitelisted projects since the program was released in January.

"The government's purchase of housing inventory can inject more liquidity to developers, who could then have more resources for housing delivery," Larry Hu, chief economist at Macquarie, told CNBC. "Finally the government stepped in as the buyer of the last resort."

"At this stage, it's mainly SOEs and local governments to implement the policies, but their resources may be too limited to move the needle at the macro level," he said. "Later on, we might see more efforts from the central government."

Developers "that must go bankrupt should go bankrupt, while those that need to be restructured should be restructured," Dong Jianguo, deputy head of the ministry of Housing and Urban-Rural Development, told reporters in Mandarin, translated by CNBC. He said homebuyers' interests and rights should be prioritized, and those that violate the law should be punished.

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[–] [email protected] 4 points 6 months ago* (last edited 6 months ago) (1 children)

This action of the PBOC bailing out the failing real estate sector is really no different from the US bailing out the banks during the sub-prime mortgage crisis in 2008. The internal mechanism is slightly different because as you say, the society is structured differently, but the outcome is the same - a wealth transfer from the state to property owners.

Privatize the gains and socialize the losses.

[–] [email protected] 21 points 6 months ago* (last edited 6 months ago) (1 children)

The People's Bank of China will provide 300 billion yuan ($42.25 billion) to financial institutions to lend to local state-owned enterprises (SOEs) so they can buy unsold apartments that have already been built.

This reads, to me, as China loaning money to state owned "businesses" (think the United States Postal Service in the USA) to buy up real estate that sits too long. It will keep a USA 2008 style crash from happening while moving more housing from private hands into public hands.

What happened in the USA in 2008 was that private enterprises got free money with no strings attached to cover their losses. And that was it. Federal/state governments could have forced banks to renegotiate mortgages with the people living in the houses, or used the free money to buy controlling shares of businesses, or required that all these businesses that got free money could either pay the loan back on a schedule or the owners would take what money they could and the businesses would belong to the state/federal government to run.

[–] [email protected] 3 points 6 months ago (1 children)

What happened in the USA in 2008 was that private enterprises got free money with no strings attached to cover their losses. And that was it.

This is actually not true:

To address the crisis, Congress passed the Emergency Economic Stabilization Act of 2008. The act created the Troubled Asset Relief Program (TARP), which authorized the U.S. Department of the Treasury to buy up to $700 billion in toxic assets from companies, which could then replenish their balance sheets with safer assets.

The Treasury Department was also authorized to buy up to $250 billion in bank shares, which would provide much-needed capital to financial institutions. It bought $20 billion in shares each from Bank of America (BAC) and Citigroup (C). The Treasury Department later sold those shares back for a profit. In total, the government provided $245.1 billion in TARP assistance to banks and recouped $275.6 billion, for an investment gain of $30.5 billion.

reference

As of September 30, 2023, all TARP programs have closed. While Congress authorized $700 billion for TARP, Treasury utilized far less than that. The TARP actual lifetime cost was approximately $31.1 billion, most of which was attributable to the program's efforts to help struggling homeowners avoid foreclosure.

The cost of the financial crisis was properly measured by its human impact: the jobs lost, the wealth destroyed, and the hardship that fell upon millions of American families. From the very beginning, the primary purpose of the government’s response was to arrest the economy’s free fall and limit the recession’s devastation–not to make money.

TARP helped prevent a second Great Depression, stabilized a collapsing financial system, and restarted the markets that provide mortgage, auto, student, and business loans.

TARP's investment programs are closed. As of September 30, 2023, the total amount disbursed for TARP programs was $443.5 billion and OFS collected $425.5 billion (or $443.1 billion if including the $17.5 billion in proceeds from the additional Treasury American International Group, Inc. [AIG] shares).

While Congress authorized $700 billion for TARP, Treasury utilized far less than that. The TARP actual lifetime cost was approximately $31.1 billion, most of which was attributable to the program's efforts to help struggling homeowners avoid foreclosure.

reference

China's real estate market is in a similar situation, and they are taking similar steps to try to soften the crash (as you said). Whether it works for them or not remains to be seen. It still amounts to a wealth transfer from the state to the property owners, who are currently holding toxic assets.