Chinese Regime Makes Rare Gesture to Ease Real Estate Giant Vanke’s Market Panic

This aerial photograph taken on Aug. 30, 2023 shows a damaged logo of Chinese real estate developer Vanke at a residential housing complex in Zhengzhou, in China's central Henan province. AFP via Getty Images

Vanke is a major Chinese residential real estate developer that has long been viewed as a “model” real estate company. However, after two of the world’s largest real estate developers from China, Evergrande and Country Garden, plunged into default, Vanke is also facing a crisis as sales plummet in China. In response, the Chinese regime is giving Vanke a rare show of support.

Since the beginning of this year, the price of Vanke A-shares has plummeted 42.6 percent, and in October, the price of overseas U.S. dollar bonds also plunged. The yield of several bonds has risen to about 50 percent. Since bond yields are inversely proportional to bond prices, bondholders sold their bonds at lower prices.

This has led to speculation that Vanke stocks are about to crash. Investors also fear that major shareholders may reduce their holdings in Vanke, which would inevitably lead to a sharp drop in Vanke’s stock and bond prices.

State Intervention

Since Vanke is headquartered in Shenzhen, the city’s state-owned Assets Supervision and Administration Commission (SASAC) has come to the rescue in an attempt to save China’s stagnant real estate sector. The SASAC is directly under the Chinese Communist Party’s State Council and is responsible for managing China’s state-owned enterprises (SOEs), which are backed by the regime and constitute a significant part of the Chinese economy.

The Shenzhen branch of SASAC said that Vanke has sufficient security and is an important member of the country’s state-owned assets system. If necessary, in an extreme situation, the SASAC will support Vanke through all means. By the end of 2022, Shenzhen city’s state-owned capital totaled more than 5 trillion yuan (US$690 billion). There are more than 40 A-share listed companies in which it holds or participates in.

The top shareholder of Vanke, Shenzhen Metro, has taken over as vice-chairman of the board of directors of Vanke Group. Shenzhen Metro Group, a large SOE under the direct control of Shenzhen SASAC, has become the largest shareholder of Vanke since 2017 and currently holds over 27 percent of Vanke’s total A-shares.

Shenzhen Metro said it will not reduce its stake in Vanke and has prepared various means to support the real estate developer. It will take the opportunity to buy bonds issued by Vanke in the open market to boost market confidence.

Vanke is a state-private mixed-ownership real estate enterprise. This time the Shenzhen SASAC considered Vanke as a part of the city’s state-owned assets. Vanke’s total assets, operating income, and total profit constitute more than 30 percent of Shenzhen’s state-owned assets.

Data shows that as of the end of September, Vanke’s contracted sales ranked second among China’s real estate developers. Despite its sales amount, Vanke suffered sharp falls in stocks and bonds.

Yang Fan, a real estate industry analyst at Zheshang Securities, believes that this reflects the Chinese market’s pessimism in the real estate sector, and it will be difficult for the real estate market to recover if such a negative trend continues.

The Shenzhen SASAC’s support for Vanke greatly reduced its risks, and it temporarily eased any market panic. On the day of the SASAC announcement, Vanke stock and bond prices rebounded by more than 6 percent for the first time in over a month.

Morgan Stanley upgraded Vanke’s H-share rating from underweight to equal weight due to Shenzhen SASAC’s support for Vanke. Many banks, including HSBC, maintained their buy ratings.

A woman points at the model of a residential compound by China Vanke as a sales agent introduces the property to the visitors at its showroom during the National Day "Golden Week" holiday, in Dongguan, Guangdong Province, China on Oct. 2, 2018. Reuters

China’s SASAC rarely supports real estate companies. The fact that Vanke has received strong support from the SASAC is privileged treatment. Other failing real estate developers in China have not received the backing of the SASAC and have entered debt restructuring.

But the backing of Vanke is being seen as policy coming from the highest levels in response to the overall crisis in China’s real estate sector.

On Oct. 30 and 31, Chinese leader Xi Jinping’s regime convened at its Central Economic Work Conference, which was aimed at preventing and resolving financial risks in real estate. Less than a week later, China’s central bank issued guidelines to support local municipal governments to save the country’s real estate sector.

The Shenzhen officials’ use of the city’s SASAC to support Vanke will be viewed as a political achievement under the Xi regime’s economic policy.

Some market analysts in China believe that Shenzhen SASAC’s actions indicate that the Chinese regime’s current economic priorities are to save the remaining relatively healthy real estate companies to retain foreign investments.

By the end of June this year, only around a dozen of China’s listed real estate companies maintained a relatively healthy financial outlook. In the second half of the year, the number continued to decrease as their revenue dropped sharply.

However, even if the regime’s new policy comes out to support the so-called “healthy” real estate companies, it will only benefit a dozen or so companies at most and will have a limited impact on China’s real estate sector as a whole. The private sector will unlikely have a chance. The current trend for the regime is to expand the regime’s SOEs at the expense of the private sector.

This aerial photograph taken on Aug. 30, 2023, shows a residential complex built by Chinese real estate developer Vanke in Zhengzhou, in China's central Henan Province. AFP via Getty Images

Li Kai (pseudonym), an employee in the financial sector in Shenzhen, told The Epoch Times on Nov. 9 that private companies in China have always been discriminated against by the regime since they pay more taxes, have more difficulties in financing, and simply do not enjoy the same privileges as the SOEs.

A decade ago, Vanke ceded its major shareholding to an SOE in order to be treated favorably by the regime. Under the CCP, private companies can never truly be successful on their own.

“Now the entire economy is in decline, and the major shareholders of state-owned enterprises themselves have no control over their futures,” said Mr. Li.

“This time, Shenzhen’s SASAC’s move is a gift to Xi Jinping’s economic policy, but it is also because Vanke’s assets are larger than its liabilities. The gesture of Shenzhen’s SASAC can stabilize the market confidence to a certain extent,” he said.

“However, Vanke would still be dependent on actual sales. If properties remain unsold for a long period of time, Vanke’s crisis will return.”