PBOC Denies It Will Bail Out Collapsed Real Estate Developer While Chinese Property Developer Market Crashes

Tyler Durden's picture

In yesterday's most underreported story, which we noted first thing yesterday morning, China is on the verge of a second bond default just weeks after Solar cell maker, Chaori Solar, defaulted earlier this month, this time Zhejiang Xingrun (appropriately abbreviated ZX): a real-estate developer which just collapsed after its largest shareholder was arrested and which has some CNY3.5 billion in debt and furthermore the company was revealed to have been taking deposits from individuals offering annual interest between 18% and 36%.

But while Chaori was left to crash and burn, ZX may need a bailout for the same reason that we have always said - namely that China is desperate to keep kicking the can for as long as possible as any glimpse under the hood will reveal the true Chinese credit bubble nightmares, best summarized (previously) in the following: "CITIC Trust tried to auction the collateral but failed to do so because the developer has sold the collateral and also mortgaged it to a few other lenders." Which is why overnight the FT reported that none other than the Chinese central bank was scrambling to bail out the lender in order to avoid the inevitable liquidation avalanche that will begin as soon as the realization hits just how far China's non-existent collateral is stretched out.

From the FT:

Officials from the government of Fenghua, a town in eastern China with a population of about 500,000, the People’s Bank of China and China Construction Bank, which was the main lender to the developer, were on Tuesday thrashing out ways to repay the company’s Rmb3.5bn ($566m) of debt.

Not surprisingly, local government officials were keen to downplay Xingrun’s fate, which quickly added fuel to jittery markets after Chaori defaulted previously. The "situation is not that serious yet", said a Fenghua local government official to the FT who only gave her surname Wu. Failure of a small property developer is not unusual in China or even in Zhejiang Province, where Xingrun is based. Well, it is if people start asking questions.

One can see why the local governments and administrators are eager to downplay the potential impact. As Bloomberg reported overnight, "some 66 percent of new Chinese developer dollar-denominated bonds sold this year are trading below their issue price amid the collapse of a private real estate company and news the housing market is cooling." In other words, the Chinese housing market is suddenly the perfect receptacle for a lit default match to lead to an all out panic.

About $6.3 billion of notes in the U.S. currency sold by property companies including Guangzhou R&F Properties Co., KWG Property Holding Ltd. and Shimao Property Holdings Ltd. (813) have fallen in secondary market trade, according to data compiled by Bloomberg. Prices on Kaisa Group Holdings Ltd. (1638)’s 2018 8.875 percent debentures dropped to a seven-month low yesterday while Shimao Property’s $600 million of 8.125 percent notes due 2021 and sold to investors at par in January were trading at 97.646 cents on the dollar.


Demand for developer debt is waning after government officials familiar with the matter said yesterday Zhejiang Xingrun Real Estate Co. doesn’t have enough cash to repay 3.5 billion yuan ($566 million) of debt. The value of home sales in the world’s second-biggest economy fell 5 percent in the first two months of the year after local governments stepped up measures to curb rising prices. The 7.5 percent economic expansion targeted by China this year would be the slowest since 1990.


We’re cautious on property bonds short term, with the developers expected to report weaker year-on-year monthly sales data for March,” said Owen Gallimore, a Singapore-based credit analyst at Australia & New Zealand Banking Group Ltd. “For the majority of high yield property developers, January and February sales fell as tier three and four cities suffered from over supply and the smaller developers faced a credit squeeze.”

In other words, not only is the primary market frozen, but the secondary market is crashing further adding to the reflexive fuel that could be precisely the catalyst that unwinds the entire Chinese credit bubble:

China Resources Land Ltd. was the last company from China and Hong Kong to sell dollar debentures in Asia, adding $50 million to its existing 4.375 percent bonds due February 2019 on March 13.


The collapse in secondary prices comes less than two weeks after Shanghai Chaori Solar Energy Science & Technology Co. became the first company in China to default on its onshore corporate bonds.

All of this is happening as China is doing all it can (and has been for the past two years, without success) to cool its red hot housing market bubble, which unlike the US where the bubble is in the stock market, in China it is all about housing:

At least 10 Chinese cities stepped up measures to cool local property markets at the end of last year with Shenzhen, Shanghai and Guangzhou raising the minimum down payments for second homes to 70 percent from 60 percent.


New-home price growth slowed last month led by Beijing, Shenzhen, Shanghai and Guangzhou, the four cities the government defines as first tier, the National Bureau of Statistics said today. Prices in Beijing and Shenzhen each rose 0.2 percent in February from a month earlier while they added 0.4 percent in Shanghai, the smallest increase since November 2012, and gained 0.5 percent in Guangzhou. Prices advanced in 57 of the 70 cities the government tracks, versus 62 in January.


So all of the above would suggest the FT's report of an imminent, if stealthy, bailout of ZX is true, right? Turns out isn't.

In fact the PBOC was so pissed about the "condemned untrue foreign media report" it took to its Weibo microblog site to explain what really happened. As Bloomberg summarized, the Chinese central bank says it didn’t participate in an “emergency meeting held Tuesday” to discuss Zhejiang Xingrun Real Estate as reported by some unidentified media  according to a statement posted on PBOC’s official microblog account. PBOC is not involved in dealing with risks from the developer, according to the statement.

For the purists, here is the official statement via Weibo:

[Condemned individual foreign media untrue] March 18, individual foreign media reports, "China's central bank to discuss emergency aid small real estate company," inconsistent with the facts: First, the People's Bank did not participate in the text referred to "convene an emergency meeting on Tuesday." . Second, the People's Bank of Zhejiang Xingrun not involved in the disposition of property-related risks. False reports to the media release behavior in unverified cases, the People's Bank strongly condemned.

Well, it was google-translated, but the gist is clear.

So which is it: will China really let ZX fail and allow the second bond default in under a month to further slam the secondary bond (and much less relevant equity) market, while grinding the all important primary issuance market to a halt at precisely the time when credit creation in China is absolutely critical, or will the PBOC have been exposed as a liar once again.

Since the PBOC is merely a central bank, and thus lying is its bread and butter, our money is on the former, but one can only hope that in a world in which the Bernanke global put is now ubiquitous and perpetual, and the only investment calculus depends on the return/return analysis, that it will be "communist" China that finally allows risk back into the global investment equation.

And finally, putting it all into perspective, is our favorite chart showing bank asset creation in China and the US over the past five years. It needs no commentary.

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motorollin's picture

Rehypothecation, bitches!

ParkAveFlasher's picture

Sum Ting Wong!  Varues are corrapsing.  Might need bairout!

Newsboy's picture

That which cannot be sustained will collapse.

I am more equal than others's picture



The asset graph looks like a giant shark looking to take a bite out of something.

"captain, I think we are going to need a bigger boat......."

Bangin7GramRocks's picture

Nipsy Russell say, "Riiiiiiiiiiiggggghhhttt!"

y3maxx's picture

Must take China's Citizens minds away from Bank Fraud/Corruption. Invasion of Senkuku Islands in 3...2...1.

monkeyboy's picture

How do you like them noodles?!?

monkeyboy's picture

How do you like them noodles?!?

Seer's picture

Rehypothecation, it's like reanimation, only without an actual body...

Zero Debt's picture

With enough haircut, even a panda can be rehypothecated.

LawsofPhysics's picture

Please, the Chinese are a single-party state-run society.  There will be no argument with respect to the rehypothication of assets or the "disappearing" of "bad" debt/people...

iLiquid's picture

You forgot the foreign creditors, disguised as trading counterparties, from shadow channels such as "copper financing".  China is not a closed loop (not that a closed loop would be any better).


LawsofPhysics's picture

Bullshit, ever been to China?  Ever work with the Chinese?  Please, the Chinese offer one type of contract to other Chinese and offer a completely different deal to everyone else.  in that sense, China is very much a closed loop that has spread around the world.

iLiquid's picture

I'm a Chinese working in China, and I can relate to what you mean.  Then again my point is that the Chinese cannot print the USD they owe to the foreign creditors on the offshore leg of shadow banking (search for "copper swan" on ZH).  In a truly closed loop the Chinese could just print the dollars and call it a day (same logic behind ECB circular bailout).

LawsofPhysics's picture

please, China still has plenty of treasuries to sell if they need dollars.  they also have had a direct line to the treasury since 2009 and can in fact buy treasuries with yuan.


As I have said before, the real power brokers in both contries have been on the same page since 1971.

Corporate America/China would love to see people in both contries working for Chinese wages (and under Foxconn conditions)...

hedge accordingly.

Seer's picture

"China still has plenty of treasuries to sell if they need dollars"

It's a bit tricky here... The more they sell the more it drives down the price and the more the Fed will have to print, which further devalues things.  It really is a slow train wreck...

pods's picture

Good luck making it through this rough patch.  

Of course, the bailouts are a token compared to the rehypothecation amounts. Sold and mortgaged 4x?  That is awesome by City of London standards.

This is a giant, bloated floating pig through a python.  

And if the future looks cloudy, it isn't the smog.


Winston Churchill's picture

Rank amateurs, Bear Sterns was @ 42 times the base collatral.

Zero Debt's picture

It ain't floating if it ain't krispy

RSloane's picture

What was it about the Chinese premiere's warning to the world did people not understand?

Dr. Engali's picture

The made in China robots don't speak Chinese. That is capability reserved on one of the chips for the right time to strike.

Drifter's picture

Why all the fretting over letting insolvent companies go bust?  Should've happened here.

Element's picture

Well it's OK if a businesses go bust, its just that banks can not be let go bankrupt, as those debts have to be paid by tax payers.

See? It's just how iCapitalism and freedumb work ... now eat your peas.


kaiserhoff's picture

Because the banks are owned by:

  Those Who Worship Money.

agent default's picture

Capitalism means NO BAILOUTS.  If you did stupid things you go bankrupt.  Sad to see communist China more capitalist than the US ever was.

Seer's picture

I'm sure China has its TBTFs too.  In time we'll find out...

BurningFuld's picture

Confucius say: He who bullshit most can print most money.

Bearwagon's picture

Yes! That's good, and reason enough to call it a day and pop some beers ... and man, if something ever has been about time ...

Element's picture



"So which is it: will China really let ZX fail and allow the second bond default in under a month to further slam the secondary bond (and much less relevant equity) market, while grinding the all important primary issuance market to a halt at precisely the time when credit creation in China is absolutely critical, or will the PBOC have been exposed as a liar once again"

Not a problem, Whalen says there are no Chinese banks, figment of central imagination. 

During my trip to France last week for an event sponsored by the Global Interdependence Center and the Banque de France, I appalled a group of economists by suggesting that there are no banks in China. Statistics on growth, debt and investment are all a fiction used to manipulate opinion, inside and outside of China. http://www.zerohedge.com/contributed/2014-03-17/sol-sanders-chinese-empe...

Colonel Klink's picture

PBOC denies, may as well say the Fed denies.  In other words, they'll lie and do what they want behind the scenes to support their cause of the scam.

Just remember, subprime is well contained from 5 years ago.  Nothing to see here, move along...

The Axe's picture

In all the years of my experience.....1982   this  TODAY is the fakest market (equity) I have ever witinessed   complete bullshit...

The Wisp's picture

Anything the Government denies 3 times is True.. We have no troops in Cambodia, We Have no troops in Cambodia, We have no  troops in Cambodia,   shit looks like our guys are fighting in Cambodia

Rainman's picture

" All provinces of China are Greece " ....Larry Lang, circa 2011

Seer's picture

The WHOLE world is Greece!

iLiquid's picture

Not even King Alexander of the Macedonians would have thought of this...

Element's picture



No, no, no, it needs more Ehud Barak in it  ... like this


"We're all Greeks now!"

iLiquid's picture

The firm concerned here, the ZX, is an "independent" real property developer not controlled by a government entity.  This alone sealed its fate.  It would be completely different if it were a guoqi, or state-owned corporation.

Spungo's picture

Society is getting dumber by the minute. If you look at a historical list of companies of the Dow Jones index, you'll notice most of those companies don't exist anymore. At some point, central planners decided companies should never fail. We need a committee to re-build Studebaker and Standard Rope & Twine!

Seer's picture

Bring back the Gremlin! (AMC - I saw one other 4x4 cars the other day, pretty rare itself)

assistedliving's picture

its gotta start somewhere...

slightlyskeptical's picture
"At least 10 Chinese cities stepped up measures to cool local property markets at the end of last year with Shenzhen, Shanghai and Guangzhou raising the minimum down payments for second homes to 70 percent from 60 percent." Loose lending my ass. This is simply fraud. So a bunch of money goes up in smoke. Happens every day in America.
Never One Roach's picture

I hope China does what the USA did in the 1980s crash. Lock up any fraudsters and let the market correct. The pain is over quicker and the RE market will be healthier in 3-5 years instead of this massive bubble.

Seer's picture

"The pain is over quicker and the RE market will be healthier in 3-5 years"

So, instead of total rot it'll have one sprig of green, until, that is, it fails because it's attached to the rot...

NONE of this is going to get "healthy" (no more so than one can cheer on "robust" cancer).

joego1's picture

More dead pigs floating by.

NoTTD's picture

There is no reason to believe what the Chinese government says on any topic.   


Ignorance is Strength.

creeko's picture

will China really let ZX fail... or will the PBOC have been exposed as a liar once again?

Anyone wanna take bets on which one will happen?  I got my money on the liar.

Charles Wilson's picture

Key sentence: "Failure of a small property developer is not unusual in China..."

But failure of a LARGE property developer would be "unusual".

Nothing like Crony Socialism...Well, maybe there is something like Crony Socialism.

Tell me again how Capitalism doesn't work anymore?