By Shen Hong, Bloomberg Markets Live commentator and reporter
The de facto partial state bailout of Central China Real Estate is certainly a sign of things to come, and bodes well for small- to mid-sized Chinese developers of strategic importance to local authorities.
The chairman of the Henan-based developer, China’s 37th-largest, will sell a 29% stake in the firm to a real estate company owned by the provincial government. The proposal followed a December move by China South City Holdings to also sell an identical stake to a state firm. The moves strongly hint at local coordination based on instructions from the very top, as Beijing steps up efforts to prevent the property sector’s liquidity crisis from deteriorating into a major systemic risk.
To be sure, not all distressed developers will be as lucky as the above-mentioned two. Henan is not a rich province but Central China happens to be a major local employer and taxpayer. As one of the nation’s most populous provinces, Henan also can’t afford to see angry homebuyers stage street protests if the developer collapses and leaves behind unfinished apartments.
One last thing: the two episodes need not rekindle concerns about aggressive nationalization of private enterprises. Beijing is proactively helping these struggling developers, with likely no intention to fully own them in the long run.
Real estate is becoming a sunset industry in China, as the population ages fast and economic growth slows further. It’s not where state firms want to be, unless called upon to do the national service of building cheap public housing.