In past articles, we have focused on the debt problems of real estate companies and residents.
March and June-July 2024 are the peak of debt repayment for real estate companies, although the state has introduced various policies to relax restrictions on real estate companies on the financing side as much as possible, but the fundamental problem cannot be solved by national blood transfusion alone.
Just like the bankruptcy of Silicon Valley Bank in the United States, low interest rates and financial support will only blow up bubbles, give birth to zombie companies, and then drag down the operation of the entire financial system.
What can really save real estate companies is the rise of the sales side, and only when residents are willing to buy houses, can this business operate.
2024 is also the peak of debt repayment for residents, and the main focus is on foreclosure houses.
From 2017 to 2020, about 20% of second-hand houses in Shenzhen used "high-rated high-loan + mortgage loan"; From 2021 to 2023, more than half of the mortgages will be converted into "mortgage loans"; It is expected that in the next two years, most of the renewal orders will need to make up the difference.
Huang Qifan's point of view also emphasizes the foreclosure house, saying that if the number of foreclosure houses accounts for 20%, it will affect the second-hand housing in the entire area, and when the overall average price of the city is 30-50%, these foreclosure houses should be sold to support the property market while being used as affordable housing.
So, does it have the financial strength?
In fact, compared with enterprises and residents, the issue of converting local government bonds into debts is also quite urgent.
"Local government debt" is a general concept.
Local bonds in the narrow sense refer to bonds approved by the Ministry of Finance and issued through provincial **.
In addition to explicit bonds directly issued by local governments, local bonds in a broad sense also include a large number of corporate bonds, corporate bonds and medium-term notes issued by local investment and financing platformsThe latter is referred to as "urban investment bonds" and is usually considered to be the main component of local hidden debts.
The main problem faced by local financing vehicles is that even if debt restructuring can extend the maturity of debt and lower interest rates, it will not be able to quickly solve the pressing problem of interest payments.
Recently, the risk of default has increased dramatically due to the tightening of new financing channels. Recently, there have been a lot of non-standard financing products such as trust, private equity, factoring, and fixed financing on the urban investment platform, which makes people a little panicked.
Last week, it was reported that the State Administration of Foreign Exchange (SAFE) had suspended the issuance of 364-day offshore bonds by Shandong's urban investment platforms.
Urban investment platforms typically raise funds through the issuance of offshore RMB bonds and US dollar bonds, mainly to repay existing non-standardized debt or to solve liquidity problems. However, this practice is seen as a stopgap measure, as it is effectively filling the gap with new debt.
This move by the State Administration of Foreign Exchange further restricts the financing channels of these platforms, and it also makes people think:
Why would urban investment platforms prefer high-cost offshore financing (10%-15% annualized cost) rather than lower-cost domestic bank loans?
A person from a Hebei municipal-level platform saidThe implementation of the current round of financialized debt policy is not very activeWe have to talk about it one by one, and each situation is different, so progress is slow.
On the other hand, more importantly,In the case of the deep adjustment of real estate, the precipitous decline in land sales income, and the huge gap in interest payment fundsWill it help the local government to move towards chaotic financing, quench thirst, and further expand hidden debts?
Perhaps, China's current huge debt problem is not really the core problem.
Debt is just the surface, and behind it is the overinvestment in real estate, infrastructure and manufacturing over the past decade.
Imagine if a person or a company invests in a project, but the project doesn't bring the expected returns, then the money is wasted.
Under normal circumstances, such losses should be recognized and deducted from the books.
But in China, many of these losses are not recognized and dealt with in a timely manner, but remain on the books in the form of assets.
It's like keeping something that has broken down as if it's still a treasure, but in reality it's worthless.
Let's look at a case from Yunnan:
Yunnan has nine major plateau lakes, and huge financial and material resources have been invested in the improvement of plateau lakes in recent years. This happened right next to one of the lakes with the best water quality.
Seventeen years later, in order to maintain the water quality of the lake for a long time, the county carried out a vigorous demolition work around the lake, and all the buildings within 200 meters of the lake were demolished, and tens of thousands of people moved away from the lake.
However, the cost involved in the relocation of tens of thousands of people is a large amount, so more than 2 billion special bonds have been issued. At that time, the county's financial revenue was only about 400 million yuan a year.
There are many supporting projects in the back, such as resettlement houses and rain and sewage diversion projects, and special bonds have also been issued, one of which is the construction of the Huanhu Wetland Park.
The idea of the wetland park was to establish a wetland park in the demolished village area, and to introduce the natural flow of water into the lake (the water from the rivers and streams that flow through the town) into the wetland park, and then flow into the lake with natural purification.
This project can be said to kill multiple birds with one stone, beautify the landscape, increase scenic spots, and purify water quality. At the beginning of 2021, the beautiful wetland park entered the final stage, with tens of thousands of acres of green vegetation and flowers blooming on the north shore. I have to say, it's really beautiful, and the crystal clear water of the lake is in perfect harmony. Moreover, the North Shore Wetland Park is free of charge, which also attracts many tourists.
In mid-2021, due to the Dianchi Lake incident, the lake was also implicated, and as soon as the inspection team arrived, they demanded that all the North Shore Wetland Park be bulldozed and restored to farmland within 2 months. (It was originally the site of a demolished village house, and now it is required to plant rice.) The wetland park with an investment of 200 million yuan has been lost.
As a result, the leaders have changed batch after batch, and the original stalls have become bigger and bigger, and the small county town with an annual financial income of only 400 million yuan has been in debt of 10 billion yuan in a few years. In fact, similar things can be said to be quite common, and the current high debt in many places is directly related to this.
The above situations and cases may not be unique nationwide, and are particularly common in state-owned enterprises, localities** and certain manufacturing industries that are particularly subsidized.
Since these sectors can easily obtain loans, they can continue to make inefficient or even ineffective investments without fear of immediate financial distress.
This leads to a problem:Over time, these sectors have become more and more indebted, but the assets on their books are not actually worth enough to service those debts.
So, what we need to solve urgently may not be the debt problemWhat is more important is what to do with assets that are overvalued and have no real value.
This means that cities across the country need to actuarially calculate the true losses of all investments and find reasonable ways to allocate them.
Summary:
Behind the debt problem, China needs to face up to the real losses behind these fake assets and take measures to deal with these losses reasonably to avoid a greater impact on the economy.
Of course, this is a complex and huge project, which requires the joint efforts of **, enterprises and financial institutions to solve.