CCP's Third Plenum Offers No Respite for China's Faltering Real Estate Sector

China's real estate sector continues to struggle as the Chinese Communist Party's (CCP) third plenum concluded without offering solutions. Despite state backing, major developers face dwindling sales and mounting debts. The trend of 'guojin mintui' reflects a shift from private to state dominance amid economic challenges.

The Chinese Communist Party's (CCP) third plenum concluded this week without offering any relief to the country's struggling real estate sector, according to a report by Nikkei Asia. The sector faces dwindling contracted sales, a crucial revenue source for developers to fund projects and pay off mounting debts.

In 2021, the top 19 listed developers in the industry achieved contracted sales exceeding 100 billion yuan (USD 13.8 billion). However, by the first half of 2024, this number dwindled to just five developers, all of whom are either owned or backed by the government.

Among the top performers, Poly Developments and Holdings Group, a government-owned developer, reported 173 billion yuan in contracted sales. China Overseas Land & Investment (COLI), a unit of China State Construction Engineering Corp. (CSCEC), followed closely with 148 billion yuan. China Vanke, although not state-owned, is backed by the government, with Shenzhen Metro holding a significant stake.

The phenomenon known as 'guojin mintui,' meaning 'the state advances as the private sector recedes,' is evident in China's real estate sector. State credibility and stability are aiding some companies through state-dominated banking support and consumer reliance on the government during economic distress.

Yet, even government-owned or affiliated entities are not immune to losses. Poly Development expects a net profit drop of 39% for the first half, while China Vanke anticipates its first-ever loss since its 1990 listing. Jizhou Dong, head of Chinese property sector research at Nomura, noted that there has been no significant turnaround in the property sector.

'There hasn't been any meaningful turnaround in the property sector, as indicated by shrinking sales and falling prices. It doesn't really matter whether it's a state-owned enterprise or not. The only interest in these mainland property shares comes from investors required to allocate a portion of their assets to property,' Nikkei Asia quoted Dong as saying.

(With inputs from agencies.)