Chinese property sector clouded in uncertainty

Company News

by Glenn Dyer

In his latest monthly meeting statement, Governor Philip Lowe of the Reserve Bank of Australia has underscored the challenges within the Chinese property sector as a significant worldwide issue, both for Australia and beyond.

Lowe's statement, marking his final post-meeting address, particularly highlighted the problems plaguing the Chinese property sector among a roster of potential uncertainties affecting the Australian economy:

He stated, "The outlook is shrouded in substantial uncertainty. Across international markets, service price inflation has demonstrated surprising persistence, potentially paralleling Australia's situation."

"Furthermore, uncertainties persist concerning the time lag in the impact of monetary policy, as well as how pricing choices of firms and wage dynamics respond to the decelerating economic growth during a period of sustained labor market tightness."

"The trajectory of household consumption also remains enigmatic, with numerous households grappling with financial constraints while others reap the benefits of escalating housing values, considerable savings cushions, and augmented interest returns."

"In a broader global context, mounting uncertainties encompass the trajectory of the Chinese economy, largely attributed to persisting strains within the property market," Lowe penned.

The statement unequivocally underscores that the predicaments within the Chinese property sector constitute a significant worldwide uncertainty for both the Reserve Bank of Australia (RBA) and the nation as a whole.

The challenges facing China's property sector are poised to persist, irrespective of the optimism expressed by optimistic analysts and investors, both Western and Chinese, concerning the recent governmental efforts to stabilize the sector.

Country Garden, a beleaguered industry giant, confronts further repayment trials this week, following a recent extension of a $US537 million onshore bond last weekend.

According to Reuters, Country Garden acknowledged last month that it had defaulted on interest payments for bonds due on August 6, amounting to $US22.5 million. This development amplified market apprehensions, suggesting the developer was slipping into a deepening liquidity crunch. The report stated that both payments carried 30-day grace periods, which concluded yesterday (Tuesday).

Subsequent to a robust trading session on Monday, stock markets in China and Hong Kong witnessed a steep decline on Tuesday, primarily driven by escalating concerns surrounding Country Garden's situation.

Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

Subscribe to our Daily Newsletter?

Would you like to receive our daily news to your inbox?